Taxes on menthol cigarettes are better than statewide bans

Bans on menthol cigarettes in Massachusetts.

Follow us onFollow Tech Explorist on Google News

In the United States, over one-third of cigarettes marketed have a menthol taste, and experts think these cigarettes are more dangerous than regular cigarettes. Menthol sales are prohibited in over 150 cities and counties, including statewide bans in Massachusetts and California. In 2022, the Food and Drug Administration suggested a federal ban, although it may never be implemented. The University of Washington’s research suggests that a menthol tax is a more effective policy than statewide bans in the absence of a national ban.

According to a new study, menthol sales increased in bordering states, even though some people switched from menthol to non-menthol cigarettes in Massachusetts. This shows that people shop for menthols across state lines, reducing income tax for Massachusetts while decreasing favorable health effects. A statewide menthol tax would be desirable since it would reduce smoking in the state while increasing tax income.

Menthol offers cigarettes a refreshing, minty feel, reducing harshness and increasing initiation among new smokers. When combined with nicotine, its effects on the brain are also linked to signs of increased addiction. Despite the ban, many menthol users continue to use them, simply crossing the border into New Hampshire or Connecticut and purchasing cigarettes there.

Simha Mummalaneni, co-author and assistant professor of marketing at the University of Washington Foster School of Business, said, “From the perspective of the people who wrote this policy in Massachusetts, this is bad because it means the public health benefits are not as big. We’ve not solved the problem. We’ve diminished it but not solved it. This pattern is also bad for policymakers because they have lost tremendous tax revenue.”

The new study focuses on stores in Massachusetts, a 30-mile ring surrounding the state’s border, and a control area outside New York and New England. Researchers evaluated total weekly cigarette sales in Massachusetts and the border area to determine the overall impact of the ban from June to December 2020.

A menthol ban would reduce cigarette tax income by $108 million in Massachusetts, while a menthol tax would raise revenue by $72 million. The difference between the alternatives is $180 million in lost tax income, which could have been used to finance tobacco control programs, education efforts, outreach, and other initiatives.

Despite losing sales in Massachusetts, stores within 30 miles of the border gained customers. Most sales came from New Hampshire, with out-of-state sales up 88.72%. So, New Hampshire’s cigarette tax revenue spiked during the observation period. Non-menthol cigarette sales increased in Massachusetts after the ban, indicating that some customers moved from menthol, but not enough to offset the fall in menthol sales. However, non-menthol and menthol sales increased near the border.

State-specific bans reduce menthol usage by 46% and total cigarette consumption by 4.8%, but they also reduce tax income by around 21%. According to these estimates and the new study’s consumer purchasing model, a $6 per-pack tax would raise tax revenue by 14% while decreasing menthol and total cigarette consumption by 28% and 2.7%, respectively. When the tax rises over $6, revenue begins to fall because customers are strongly encouraged to buy cigarettes across the border.

Ali Goli, co-author and assistant professor of marketing at the UW Foster School of Business, said, “Despite its larger size, there is still reason to be worried for California. If menthols are being smuggled through organized crime, you haven’t solved the problem. You’re still sending tax revenue elsewhere. We have yet to see these scattered statewide bans working.

He added, “When you consider a tax in California, there’s no reason to believe it would fail. You can still implement a tax to generate more revenue and wait until a nationwide ban.”

In conclusion, larger states may reduce the severity of cross-border purchasing issues but not eliminate them.

Journal Reference:

  1. Ali Goli, Simha Mummalaneni, et al. Making a Smooth Exit? Menthol Bans and Cigarette Sales in Massachusetts. Marketing Science. DOI: 10.1287/mksc.2022.0361