Posted by: Josh Lehner | August 25, 2014

Graph of the Week: Tobacco in Oregon

Ahead of Wednesday’s quarterly economic and revenue forecast release, I just wanted to post a quick graph on one source of revenue for the state: tobacco. For the past few years our friends over at the Department of Revenue, Research Division have been providing us with more detailed information based on tobacco wholesaler tax forms for non-cigarette products. Cigarettes still dominate tobacco tax revenues across the country — in Oregon cigarette taxes are about 3.5 times as large as other tobacco products last fiscal year — but cigarettes have been in long-run decline in recent decades, while other tobacco products, largely, have been growing, at least as a share of the tobacco industry. Based on this relatively new data (for us, anyway) one can see the diverging trends in tobacco products sold in the state in recent years.

ORTobacco2014The number of cigarette packs sold is down nearly 9 percent since the beginning of 2011 — and the border tax is certainly in play here but suggests that the fundamental, Oregonian decline may be larger. Taxes from cigars are relatively flat, however the trends within this category are diverging. Revenue from low priced, single use cigars (costing about $0.77 or less) are down, while revenue (and the total number) of cigars subject to the maximum tax of $0.50 are up. It is unknown how much of this change is due to product price inflation alone — meaning those lower priced cigars have increased themselves to above the cap — or some other consumer trends/switches in the marketplace.

Lastly, the number of units (cans, tins, etc) of moist snuff are up 18 percent since the start of 2011. Due to data issues, it is hard to tell exactly how smokeless tobacco use has changed over the past decade according to the DHS survey (see pg 9). The Center for Disease Control and Prevention finds that smokeless usage among Oregonians is about the same as the nation, unlike our lower smoking rate. With that being said, rates were increasing during the 2000s, and today’s rates are roughly equivalent to the late 1990s. Regardless, usage rates and certainly units sold are on a different trajectory than cigarettes. In consultation with some of my colleagues across the country, most estimate that OTP revenues – other tobacco products — will increase about 3-4 percent per year. In recent years, out office’s forecasts have been closer to 3 percent, however in light of the continued strength in moist snuff, which accounts for about 75 percent of OTP overall, we are reconsidering our baseline outlook. One issue with this revenue, not unlike other so-called sin taxes, is that usage rates are higher for younger adults (see the CDC report). With the aging of the millenials out of their college years and 20s into their 30s, how exactly these trends change over the coming decade is somewhat of an open question but has implications on the various revenue streams for the public sector.

 


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