In this issue of Math in the News we investigate the increasing taxes on cigarettes that states are using as a budgeting strategy. What the are the benefits and unintended pitfalls? For more media resources for math, go to http://www.media4math.com.

1. 5/30/11

2. Taxing Tobacco Data Analysis All packages of cigarettes are charged a tax by the state, but the rate of the tax varies from state to state. This bar graph shows the tax rates for all 50 states and Washington, D.C. (For a full screen version, go to the next slide.) Source: http://www.tobaccofreekids.org

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4. Taxing Tobacco Data Analysis As the tax rate increases, so does the price of a package of cigarettes. As the price increases, the amount of state revenue increases. This scatterplot shows a rough correlation. However, this graph doesn’t take into account the size of the state’s population. Source: http://www.tobaccofreekids.org

5. Taxing Tobacco Data Analysis This graph takes into account the state’s population to create the statistic, revenue per smoker. This graph much more clearly shows that as the state increases its tax rate, the amount of revenue generated for the state increases. Source: http://www.tobaccofreekids.org

6. Taxing Tobacco Data Analysis In fact, states have become so dependent on cigarette taxes that these taxes are making up a larger portion of a state’s budget. This graph shows the percentage of the state’s budget that comes from cigarette taxes. (A full-screen version of this graph is on the next slide.) Source: US Census: http://www.census.gov/compendia/statab/cats/state_local_govt_finances_employment/state_government_finances.html

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8. Taxing Tobacco Data Analysis One of the benefits of increasing the tax rate is that teen smoking decreases. This scatterplot shows a negative correlation between the increasing price of cigarettes and the percentage of teen smokers. Source: http://www.tobaccofreekids.org

9. Taxing Tobacco There are clear benefits to taxing cigarettes: Additional state revenue, which can be used to fund education and other state initiatives. The rate of teen smoking goes down, and less smoking means fewer health problems down the road.

10. Taxing Tobacco But are there unintended problems to increasing cigarette taxes? Let’s look at some potential issues.

11. Taxing Tobacco Issue #1 There is general agreement that smoking is bad for your health. Therefore, is it ethical for the state to profit from the poor health habits of some of its citizens?

12. Taxing Tobacco Issue #2 While teen smoking goes down as the tax rate goes up, the same can’t be said for smoking adults. The data suggests that higher taxes leads to an increase in cigarette smoking among some adults.

13. Taxing Tobacco Issue #2 (cont) As the price of cigarettes go up, there is a corresponding increase to the number packs of cigarettes smoked per person. Why would this be? Source: http://www.tobaccofreekids.org

14. Taxing Tobacco Issue #2 (cont) When the prices of something goes up, consumers always look to save money. In the case of cigarette smokers, buying a carton of cigarettes effectively lowers the prices of a pack. For example, suppose there is a 10% tax increase, but buying a carton saves 10%.

15. Taxing Tobacco Issue #2 (cont) But buying cartons of cigarettes means that these smokers will buy more packs of cigarettes and will likely smoke more. Long-term this may result in higher deaths due to lung cancer.

16. Taxing Tobacco Issue #3 Because of the high cost of cigarettes in some states (in 2011 it costs more than $10 per pack in New York City!), there is a growing, illegal black market for tax-free cigarettes. This results in higher incidences of: Theft Smuggling Money laundering

17. Taxing Tobacco Issue #3 (continued) The problem of illegal sales of cigarettes results in: Lost tax revenue to the state More state resources devoted to fighting illegal sales of cigarettes

18. Taxing Tobacco Summary You’ve seen some of the pros and cons of higher taxes on cigarettes. Now it’s your turn. Write a letter to your state senator about the topic of taxing cigarettes. List some of your recommendations for addressing some of the problems that arise from these taxes. Make additional recommendations about managing the additional tax revenue from these taxes. BASE ALL OF YOUR RECOMMENDATIONS ON DATA THAT YOU HAVE OBTAINED AND ANALYZED.