Conflict management strategies and approaches

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.

Tax Implications for Development Nations

While the reliance on tobacco taxes is evident in the funding within each U.S. municipalities, state and local government, the implications of tax revenues throughout many of the world's underdeveloped nations is even more significant. Figure 2 provides an analysis of total country revenues of 24 underdeveloped nations that rely on tobacco taxes for up to 14% of total country revenues, which is the case in Uzbekistan. In addition, countries that have economies just now becoming competitive enough to join the Europe Union are also heavily reliant on tobacco revenues. The countries of Armenia, Bulgaria, Greece, China, Macedonia Turkey and the middle European nations of the Ukraine also all rely on tobacco taxes for well over 9% of total country revenues.

Figure 2: Tax Implications for Nations Dependent on Tobacco Tax for Growth

Source: The World Bank 2003)

Clearly for each of these nations the ability to generate jobs and foster greater global trade to make sure their citizens enjoy a steadily higher standard of living is critical. The need then for continually fueling greater economic growth including investments in new businesses necessitates the use of tobacco taxes to fund these initiatives. Simply put, a dollar earned in tobacco tax fro many of these nations is a dollar invested in industries that will in turn generate jobs for the nations' citizens, leading to enhanced global trade as a result. In this respect, the need for having a very strong and stable tobacco tax base is critical for the growth of these nations' economies and their ability to compete globally.

Additional factors to consider are that tobacco taxes also often lead to investments in agricultural businesses and subsidies in these nations, which are the most in need of industries as far as employment is concerned. Typically the highest unemployment rates in these nations are in the most rural of areas, which are precisely the areas where tobacco tax-based dollars are most often investment.

The reliance on taxes from tobacco across the 24 nations profiled in Figure 2 also lead many of the tobacco farmers not just in these nations, but globally, to have a higher level of income stability per acre, and also generate higher income for small and medium farmers. These are critical aspects of the broader and longer-term economic strategies of third-world nations to ensure that their most transient and difficult-to-transfer workers stay in their field of experience, which is agriculture. By incenting agricultural expertise in tobacco farmers, there is also a pronounced focus on how to increase profits per acre, thereby giving farmers and their families a chance to better themselves and also receive better healthcare and education in the process. In addition to all these benefits, the role of tobacco taxes and the revenues that flow back to both the farmers at the beginning of the supply chain and also to the nations collecting the taxes themselves is the opportunity to stabilize and control the costs of production in all aspects of tobacco processing and packaging. Simply put, having a tax on tobacco that encourages its consumption makes the entire supply chain more efficient with economies of scale more evenly distributed throughout the entire supply chain as well.

The Tobacco Demand Chain