Raising the price of tobacco products is one of the most effective ways to reduce initiation, decrease consumption, and increase cessation.
Chicago has just passed a bill to raise taxes on other tobacco products (OTP). The new taxes include:
- $1.80 per ounce for smokeless and roll your own tobacco
- $0.60 per ounce for pipe tobacco
- $0.20 per cigar (both little and large)
While raising excise taxes is the gold standard for raising the price of tobacco products, tobacco companies often soften this price hike by offering coupons, discounts, and price promotions on multi-pack purchases, such as buy some-get some offers.
The new law passed in Chicago helps to counteract these tactics by prohibiting the redemption of coupons and banning multi-pack discounts.
It also includes severability provisions that strengthen the policy. In the event that these new taxes are invalidated by a court, minimum or “floor” prices for all tobacco products will take effect. These minimum prices include the following:
- $11.50 for a pack of cigarettes
- $11.50 per pack of little cigars, which must be sold in packs of 10 or more
- $1.36 for large cigars
- $4.94 per ounce for smokeless tobacco.
- $4.56 per ounce for pipe tobacco
- $11.29 per ounce for smokeless tobacco
In the face of high excise taxes, the tobacco industry often uses trade discounts, buy-downs, or price reductions by geographic area or brand to keep prices low. Minimum price laws prevent these price manipulations and reduce targeting of products to certain populations, such as low income and racial and ethnic minority populations as well as youth, who are particularly price sensitive.
Price discounts are the largest single category of tobacco industry spending on advertising and promotions. Combining a minimum price law with a ban on discounting is a particularly strong policy approach.
The Chicago City Council also voted to raise the minimum legal sales age for tobacco to 21, following the lead of over 100 other cities across the country as well as the state of Hawaii. However, the ordinance also removed the fine for possession of tobacco for those underage, holding the tobacco seller accountable rather than young people who have been targeted by the tobacco industry.
Fines for violations were also increased. All provisions will go into effect on July 1, 2016.
Learn more about raising tobacco prices through non-tax approaches.