Depatiment  of Health  and Human Setices 
OFFICE  OF 
INSPECTOR  GENERAL 
SP~ TOBACCO AND YOUTH: 
ADDmONW  ANALYSIS  Department  of Health  and Human Services 
OFFICE  OF 
INSPECTOR  GENEML 
SPIT TOBACCO  AND  YOUTH: 
ADDITIONAL  ANALYSIS 
JUNE  1993  0131-06-92-00501  TABLE  OF  CONTENTS

PURPOSE  AND BACKGROUND  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1 
FINDINGS 
Disparity  between  tax on spit tobacco  and cigarettes  . . . . . . . . . . . . . . . . . . . . . 1 
Likelihood  of higher  prices  discouraging use of 
tobacco  products  byyouth  . . . . . . ... . . . . . . . . . . . . . .  . . . . . . . . . . . . . ...2 
Substantial  Federal  revenues  from  higher  taxmte  . . . . . . . . . . . . . . . . . . . . . .  2 
CONCLUSION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..4 
EXCISE  TAX CALCUMTIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Option  1:  Tax  comparable  to current  Federal  cigarette  tax 
Option  2A  Tax  comparable  to $1 per  pack  cigarette  tax 
0ption2B:  Tax  comparable  to $2 per  pack  cigarette  tax 
0ption3:  Tax  comparable  to State  tax onspit  tobacco 
0ption4:  Tax  comparable  to  Canadian  tax on spit  tobacco  SPIT TOBACCO  AND YOUTH:  ADDITIONAL  ANALYSIS 
OEI 06-92-00501 
Purpose 
To describe the potential impact of raising the Federal excise tax on spit tobacco in 
discouraging use of these dangerous products by youth and in raising substantial Federal 
revenues for health care. 
Background 
In December 1992, the Office of Inspector General released Spit Tobacco and Youth 
(OEI 06-92-00500), a report describing the present status of youth use of spit tobacco 
(moist snuff and chewing tobacco).  The Surgeon General, in official comments, 
characterized spit tobacco use as an epidemic of oral cancer in the making if young people 
continue to use this dangerous product.  Specifically, the report found that currently, after 
great increases in use since 1970, nearly 1 in 5 high school males use spit tobacco.  IGites 
for some States, localities or ethnic groups are even higher.  In addition, spit tobacco 
contains carcinogenic and addictive substances that, in the long run, assure continuous use 
of spit or smoked tobacco, and greatly increased risk for cancer and other diseases.  The 
report strongly urged the Department of Health and Human Services, the Federal Trade 
Commission and the Department of the Treasury to re-examine national tobacco control 
policy, including higher excise taxes, indexed for inflation, on spit tobacco.  TM 
supplemental report provides additional analysis to assist in evaluating those 
recommendations. 
Findings 
Zhe Fedend excise tax on spit tobacco is diqmpotinately  low compared to the 
cigarette tar. 
The Federal excise tax on spit tobacco is a fraction of Federal rates on cigarettes or of 
State rates on spit tobacco.  The 1993 Federal excise taxis  2.8c per 1.2 ounce tin of snuff 
and 2.4C per 3 ounce pouch of chewing tobacco.  This Federal tax rate is approximately 
1.1% of the estimated average retail price for these products.  In contrast, the 24GFederal 
excise tax on cigarettes is En timq  the spit tobacco rate, i.e.,  24Gon a pack of cigarettes 
is 11% of the estimated average retail price.  Using rates from the 32 States which 
currently have spit tobacco excise taxes, we estimated a mean State tax rate of 25% of the 
wholesale price.  Again, the Federal excise tax is only 1.7% of the estimated wholesale 
price. 
By way of contrast, average State taxes on spit tobacco and cigarettes are comparable.  Raising spit tobacco ptices  through excise taxes is a premising strutegyfor  discoumging 
youth use. 
Our survey and other research show that raising the price of spit tobacco through 
increased excise taxes holds significant promise for discouraging use of dangerous spit 
tobacco products by youth.  In our recent study, 44 percent of the 1992 young spit 
tobacco users claimed they would stop using spit tobacco if the price increased a lot.  The 
existing research indicates that for the adult population, a tobacco product such as 
cigarettes has a price elasticity of demand of approximately -0.4, meaning that a 10 
percent increase in price reduces the quantity of cigarettes demanded by 4 percent.1 
However, for young people the price elasticity of demand is even greater at approximately 
-1.44 (or a 14.4% decrease in consumption for a 10% increase in price)?  This indicates 
that any price increases associated with increased excise taxes would result in much 
greater decreases in demand for tobacco products by this population.  This price 
sensitivity by young people would significantly decrease the number of current and 
potential new users of tobacco products in the long run.  Therefore, raising Federal excise 
taxes on spit tobacco products is a very powerfid health promotion strategy. 
Since the majority of youth start spit tobacco use before the age of 12, an increase in the 
Federal excise tax would deter future use of this dangerous product in subsequent 
generations, helping to avert the epidemic of oral cancer many researchers fear. 
SubstuntiizlFedend revenues - hundreds of miilions - can be realized annually by 
increasing the excike tax on spit tobacco. 
As implied by the first finding, several logical and viable options exist for increasing 
Federal excise taxes on spit tobacco.  Depending upon the approach used, we estimate 
Federal revenues ranging from $221 million to $2 bfllon  annually can be generated.  The 
principle applied by each of these methods is that spit tobacco should be treated as just 
another tobacco product, thus removing its current special tax status.  The first option is 
to remove the current discrepancy between rates for spit tobacco and those for cigarettes. 
The remaining options illustrate revenues generated from applying to spit tobacco higher 
rates of excise tax comparable to those sometimes proposed for cigarettes.  Our revenue 
estimates are based on current consumption rates and do@  predict possible market and 
behavior adjustments by producers or consumers. 
I  U.S.  Department  of HeAb  and Human  Services,  Centers for Diaeaae Control,  Office of Smoking 
and Health,  Reducing the Health Consequence  of Smoking:  2S Years of Progrtm,  a report of the 
Surgeon General,  Publication  No. (CDC) 533-542,  1989. 
2	 Lewit,E.M., D. tiate, and M. Grossman,  The effects of government  regulation  on teenage 
smoking,  Journal of Law and Economia,  24:545-569,  December  1981. 
2  Four prominent options for increasing the Federal excise tax on spit tobacco: 
  A tax comparable  to current  cigarette  taxes. 
$$jv  Raise the Federal excise tax on spit tobacco 
from 1.1% to 11% of the average estimated 
retail price* 
	 A tax comparable  to the proposed cigarette  tax of $1 or $2 per pack. 
$1 per path 
$1 billion annuallv  Raise the Federal excise tax on spit tobacco

from 1.1% to 44% of the average estimated

retail price.

$2 per pack:

$2 billion annually  Raise the Federal excise tax on spit tobacco

fkom 1.1% to 89% of the average estimated

retail price.

  A tax comparable  to existiig  State excise taxes  on spit tobacco. 
$349 million annuallv	 Raise the Federal excise tax on spit tobacco 
from 1.7% to 25% (mean State tax rate) of the 
average estimated wholesale price for a 1.2 
ounce tin or 3 ounce pouch. 
  A tax comparable  to the Federal  Canadian  tax on spit tobacco. 
$~	 Raise the Federal excise tax on snuff to $1.90 
per tin and on chew to $1.68 per pouch. 
Details, and the assumptions upon which these options are based, are included in the 
attachments. 
To the extent that the higher excise tax would discourage use of these tobacco products, 
the above estimates may somewhat overstate the amount of revenues that would be 
realized.  However, given that the demand for tobacco products for the overall population 
is not as elastic as for young tobacco users, much of the new excise tax would be passed 
on to the general consumer.  Thus, the decrease in use of these products among youth 
would be disproportionately higher than the reduction in tax revenues from the general 
population.  Both the health effwt  of and the revenue producing aspects of the proposal 
would remain strong. 
3
 Conclusion 
Raising the Federal excise tax on spit tobacco is warranted on the basis of its 
inconsistency with other tobacco products and its potential for protecting the nations 
youth by discouraging their use of addictive, carcinogenic tobacco products that endanger 
their health.  In addition, it would raise substantial revenues that could be used to finance 
health care initiatives. 
4
      Department  of Healt~ and Hii~zinSewices 
OFFICE  OF 
INSPECTOR  GENERAL 
SPIT TOBACCO  AND  YOUTH: 
ADDITIONAL  ANALYSIS 
JUNE  1993  OEI-06-92-00501  TABLE  OF  CONTENTS

PAGE 
PURPOSE  AND BA~GRO~  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1 
FINDINGS 
Disparity beweentu  onspittobacco  and cigarettes . . . . . . . . . . . . . . . . . . . . . 1 
Likelihood  ofhigher  prices disouraging useof 
tobacco productsbyyouth  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...2 
Substantial Federal revenues from higher tax rate  . ; . . . . . . . . . . . . . . . . . . . . 2 
~N~USION  . . . . . . . . . . . . . . . . . . . . . . ..0  so~o~  .0  .O.  *-a  - o-4 
EXCISE  TAX CALCULATIONS  . . . . . . . . . . . . ..~~o  o~o.  o.o*~o  G 
Option  1:  Tax comparable  to current  Federal  cigarette  tax 
Option  Zk  Tax comparable  to $lper  pack cigarette  tax 
0ption2B:  Tax comparable  to $2 per pack cigarette  tax 
0ption3:  Tax comparable  to State t~on  spit tobacco 
0ption4  Tax comparable  to Canadiantm  on spit tobacco   SPIT TOBACCO  AND YOUTH:  ADDITIONAL  ANALYSIS 
OEI 0iW2-00501 
Purpose 
To describe the potential impact of raising the Federal excise tax on spit tobacco in 
discouraging use of these dangerous products by youth and in raising substantial Federal 
revenues for health care. 
Background 
In December 1992, the Office of Inspector General released Spit Tobacco and Youth 
(OEI 06-92-00500), a report describing the present status of youth use of spit tobacm 
(moist snuff and chewing tobacco).  The Surgeon General, in official comments, 
characterized spit tobacco use as an epidemic of oral cancer in the making if young people 
continue to use this dangerous product.  Specifically, the report found that currently, after 
great increases in use since 1970, nearly 1 in 5 high school males use spit tobacco.  Rates 
for some States, localities or ethnic groups are even higher.  In addition, spit tob
contains carcinogenic and addictive substances that, in the long run, assure continuous use 
of spit or smoked tobacco, and greatly increased risk for cancer and other diseases.  The 
rqofi  strongly urged the Department of Health and Human Services, the Federal Trade 
Commission and the Department of the Treasury to re-exarnine national tobacco control 
policy, including higher excise taxes, indexed for inflation, on spit tobacco.  This 
supplemental report provides additional analysis to assist in evaluating those 
recommendations. 
Findings 
Ike Federul excise tax on s@!tobacco is disptvportionutely knv companxi to the 
cigarette tax. 
The Federal excise tax on spit tobacco is a fraction of Federal rates on cigarettes or of 
State rates on spit tobacco.  The 1993 Federal excise tax is 2.8c per 1.2 ounce tin of snuff 
and 2.4G per 3 ounce pouch of chewing tobacco.  This Federal tax rate is approximately 
1.1% of the estimated average retail price for these products.  In contrast, the 24QFederal 
excise tax on cigarettes is @J times the spit tobacco rate, i.e.,  24Gon a pack of cigarettes 
is 11% of the estimated average retail price.  Using rates from the 32 States which 
currently have spit tobacco excise taxes, we estimated a mean State tax rate of 25% of the 
wholesale price.  Again, the Federal excise tax is only 1.7% of the estimated wholesale 
price. 
By way of contrast, average State taxes on spit tobacco and cigarettes are comparable.  Raising spit tobacco pdces  thtvugh excise -es  is a prvmising stmtegy for  &scoum@ng 
youth use. 
Our sumey and other research show that raising the price of spit tobacco through 
increased excise taxes holds significant promise for discouraging use of dangerous spit 
tobacco products by youth.  In our reant  study, 44 percent of the 1992 young spit 
tobacco users claimed they would stop using spit tobacco if the price increased a lot.  The 
existing research indicates that for the adult population, a tobacco product such as 
cigarettes has a price elasticity of demand of approximately -0.4, meaning that a 10 
percent increase in price reduces the quantity of cigarettes demanded by 4 percent.l 
However, for young people the price elasticity of demand is even greater at approximately 
-1.44 (or a 14.4% decrease in consumption for a 10% increase in price)?  This indicates 
that any price increases associated with increased excise taxes would result in much 
greater decreases in demand for tobacco products by this population.  This price 
sensitivity by young people would significantly decrease the number of current and 
potential new users of tobacco products in the long run.  Therefore, raising Federal excise 
taxes on spit tobacco products is a very powerful health promotion strategy. 
Since the majority of youth start spit tobacco use before the age of 12, an increase in the 
Federal excise tax would deter future use of this dangerous product in subsequent 
generations, helping to avert the epidemic of oral cancer many researchers fear. 
. 
Substantial Federal n?venues- hurukds  of millions - can be realized annually by 
incnmsing the excise tax on spti tobacco. 
As implied by the first finding, several logical and viable options exist for increasing 
Federal excise taxes on spit tobacco.  Depending upon the approach used, we estimate 
Federal revenues ranging from $221 million to $2 billion annually can be generated.  The 
principle applied by each of these methods is that spit tobacco should be treated as just 
another tobacco product, thus removing its curmmtspecial tax status.  The first option is 
to remove the current discrepancy between rates for spit tobacco and those for cigarettes. 
The remaining options illustrate revenues generated from applying to spit tobacco higher 
rates of excise tax comparable to those sometimes proposed for cigarettes.  Our revenue 
estimates are based on current consumption rates and do@  predict possible market and 
behavior adjustments by producers or consumers. 
1  U.S.  Department  of Health and Human Sewices,  CeIItera for Disease Control,  Office of Smoking 
and Hsahlz, Reducing the Health Consequence.s of Smoking:  25 Years of Progrtxs,  a twport of the 
Surgeon Gmeral,  Publication  No. (CDC) 533-542,  1989. 
2	 Lewit,  E.M.,  D. Coate, and M.GrossmanT,be  effects of govemmeat  zwguhtion on teenage 
smoking,  Jountal of Law and Ewnomics,  24:545-569,  December  1981. 
 
2  Four prominent options for increasing the Federal excise tax on spit tobacco: 
  A tax comparable  to current  cigarette  taxes. 
$~,y  1	 Raise the Federal excise tax on spit tobacco 
fkom 1.1% to 11% of the average estimated 
retail Priu. 
  A tax comparable  to the proposed cigarette  tax of $1 or $2 per pack. 
$1 per pack 
$ 1 billion annually  Raise the Federal excise tax on spit tobacco

from 1.1% to 44% of the average estimated

retail price.

$2 per pack

. . 
$2 bllllon wwilly  Raise the Federal excise tax on spit tobacco

from 1.1% to 89% of the average estimated

retail price.

  A tax comparable  to existing  State excise taxes  on spit tobacco. 
$349 million annually	 Raise the Federal excise tax on spit tobacco 
from 1.7% to 25% (mean State tax rate) of the 
average estimated wholesale price for a 1.2 
ounce tin or 3 ounce pouch. 
  A tax com~rable  to tbe Federal  Canadian  tax on spit tobacco. 
$~y7 bill	 Raise the Federal excise tax on snuff to $1.90 
per tin and on chew to $1.68 per pouch. 
Details, and the assumptions upon which these options are based, are included in the 
attachments. 
To the extent that the higher excise tax would discourage use of these tobacco products, 
the above estimates may somewhat overstate the amount of revenues that would be 
rcdized.  However, given that the demand for tobacco products for the overall population 
is not as elastic as for young tobacco users, much of the new excise tax would be passed 
on to the general consumer.  Thus, the decrease in use of these products among youth 
would be disproportionately higher than the reduction in tax revenues fkom the general 
population.  Roth the health eff~t  of and the reven  ducing aspects of the proposal 
would remain strong. 
3
 Conclusion 
Raising the Federal excise tax on spit tobacco is warranted on the basis of its 
inconsistency with other tobacco products and its potential for protecting the nations 
youth by discouraging their use of addictive, carcinogenic tobacco products that endanger 
their health.  In addition, it would raise substantial revenues that could be used to finance 
health care initiatives. 
4

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