Tobacco tax revenue as a funding source for state healthcare programs

Conflict Management

Why Tobacco is a Good Source of Tax Revenue

The tax revenues from tobacco continue to be one of the highest growth areas of both the U.S. And global budgets. Just sampling the years of 1997 to 2005 in the U.S. For state and local tobacco tax revenue, total receipts grew from $3.6B in 1997 to $13.4B in 2005, a significant 17.6 compound annual growth rate, which made tobacco and tax revenues one of the fastest growing tax revenue streams local, state, and federal governments. Consider also the fact that even in the most economically challenged areas of the U.S., state and local tobacco tax revenue has grown at a 12.8% compound annual growth rate according to the U.S. Census Bureau (2007) analysis presented in Appendix I of this document. Most significant has been the growth in state and local tobacco tax revenue in the Great Lakes region of the U.S., growing at a compound annual growth rate of 21% from the years 1997 to 2005. This growth is signals by nearly a five fold increase in revenues from 1997 to 2005, with $667M collected in 1997 rising to $3.2M in 2005. All of this significant revenue growth is in turn being used to fund child care, health care for the economically challenged, and for senior citizens. In many of the lower income states there would not be child healthcare without these tobacco taxes. In effect the more tobacco is sold, the greater the economic benefit to those that need it most, in the most critical areas of their lives, which is healthcare.

Using Tobacco Tax for Healthcare

Without exception, every state in the U.S. relies heavily on tobacco taxes to fund their Medicaid and Medicare programs, in addition to investing the taxes to create preventative health facilities as well. The state of Oklahoma for example is using their tobacco taxes to increase health insurance coverage, expand access to care, create a world-class cancer treatment center and also increase the states' ability to treat patients in remote locations using Internet-based tools for assist doctors in those locations in diagnosing patients and treating them. Tobacco taxes are underwriting the introduction of 21st century treatment into the most remote areas of the state. In addition, tobacco taxes also are a large proportion of the operating budget revenue for many of the hospitals throughout the state of Oklahoma as well. The prospect of eliminating tobacco taxes as a result of either a reduction in tobacco use or the tax itself would have dire consequences on the healthcare expenditures made by Oklahoma and nearly every state like this specific one that relies for a large proportion of its operating budget from the taxes on tobacco. Oklahoma is a fairly typical state in regards to its heavy reliance on tobacco tax for funding its health and medical programs.

The Tobacco Demand Chain

The use of tobacco taxes within each nation also make the specific value chains, or the connection from supplier, through manufacturer, to buyer, more efficient, in turn creating more supply chain, logistics, manufacturing and service jobs. The streamlining of the tobacco value chain is also critical for greater volumes of tobacco to be available for sale in each nation, thereby increasing taxes and being able to invest in more improvements to hire more employees. With a streamlined value chain, nations will have the ability to not only hire more workers, but also provide a higher level of educational, healthcare and human services program as a result of the increased tax revenues as a result of the entire value chain being more efficient. Lastly, it has been shown in underdeveloped nations that the cultivation, harvesting and sale of tobacco correlate with Gross Domestic Product (GDP). This is especially true in the more agriculture economies that rely on agrarian-based industries for over 20% of their total revenues. All of these factors are driven by the need to produce greater volumes of tobacco to continually fuel greater tobacco tax revenues at the local, municipal, state or province and national level. With the exception being the development of alternative forms of tax including increasing sales or use taxes, value-based taxes or worse, abolishing tax exemptions on businesses, the steady growth of tobacco taxes globally is one of the brightest and highest growth revenue sources there are for literally dozens of the world's most in-need nations. Without tobacco and the taxes on it, many nations would be struggling to provide needed healthcare for their citizens.