The 2009 Federal Tobacco Excise Tax Increase and Youth Tobacco Use

A 10 percent increase in cigarette prices can reduce the smoking prevalence among youth by around 5 percent.

In early 2009, Congress approved a tobacco tax increase of 61.6-cents per pack of 20 cigarettes and similar tax hikes on other tobacco products, such as on smokeless tobacco. The tax increases were to fund the Children's Health Insurance Program, a program that helps states insure low-income children who are not eligible for Medicaid. The overall tobacco tax hikes led to an immediate 22 percent average increase in retail cigarette prices and a 12 percent increase in retail prices for other tobacco products. In all, the new tobacco excise tax rates boosted federal revenue on tobacco products by about 147 percent, from $7.1 billion in the 12 months preceding the April 2009 tax increase to $17.5 billion in the 12 months after the tax increase.

Although the primary goal of this tax increase was to raise revenue, some supporters hoped that the increased cost of tobacco products also would deter, or reduce, the number of smokers across the country. In The Impact of the 2009 Federal Tobacco Excise Tax Increase on Youth Tobacco Use (NBER Working Paper No. 18026), co-authors Jidong Huang and Frank Chaloupka estimate that the tax increase indeed had a substantial short-term effect on the use of tobacco products. The percentage of middle- and high-school students who reported smoking fell by between 9.7 percent and 13.3 percent immediately after the tax hike, and the percentage of students who reported using smokeless tobacco dropped by between 16 percent and 24 percent.

The authors rely on survey data from Monitoring the Future, which asked tens of thousands of eighth, tenth, and twelfth grade students, ages 14-to-18, at 389 schools across the nation about their tobacco-use habits over the past 30 days. The Monitoring the Future survey was conducted between February and May of 2009, both before and after the new federal tobacco tax increase, and the same survey was conducted at many of the same schools in 2008, giving the authors the added benefit of examining smoking behaviors of students over two calendar years at the same schools.

This study suggests that a 10 percent increase in cigarette prices can reduce the smoking prevalence among youth by around 5 percent, which is similar to what other studies have found. Besides a large short-term drop in the percentage of surveyed students who reported smoking after new federal tobacco taxes were imposed in 2009, the authors estimate that there would have been between 220,000 and 287,000 more current youth smokers, and between 135,000 and 203,000 more youth smokeless tobacco users in the short-term had the federal tax increase not been implemented. The authors note that the long-term projected impact of the 2009 tobacco tax increase may be even higher, because the higher tax rate -- and the corresponding higher retail prices -- may act as a financial deterrence to future students who might otherwise take up smoking or use smokeless tobacco.

--Jay Fitzgerald