Studies on the Economic Impact of Tobacco

The earliest studies on the impact of tobacco growing, manufacturing, and related activities on the U.S. and state economies were produced by the tobacco industry, and comparable studies have been produced in numerous other countries. Over the past 25 years, industry- commissioned studies in the United States have estimated the industry’s contributions to employment, income, and tax revenues. These studies have often been used in efforts to influence legislators in debates over tobacco control policies by arguing that stronger tobacco control policies and the resulting reductions in tobacco use would lead to significant job losses and reductions in income and tax revenues. More recently, reductions in industry settlement payments to the states have been added to the list of potential negative economic consequences of tobacco control policies.
The tobacco-industry-sponsored studies typically conclude that tobacco makes a significant contribution to virtually every state economy. The methodologies used in these studies are similar. For example, the 1996 American Economics Group18 study describes the economic impact of tobacco in multiple sectors: the core sector, the supplier sector, and the expenditure-induced sector.
■ The core sector includes not only the growing of tobacco and the manufacturing of tobacco products but also the wholesale and retail distribution of tobacco products.
■ The supplier sector is defined by the industries that are involved in producing goods and services that are used by those in the core sector, including those supplying paper products; fertilizer for tobacco farmers; and gas, water, and electricity used in farming, manufacturing, and distribution.
■ The expenditure-induced sector reflects the “multiplier” effects associated with the spending resulting from the incomes generated by those working in the core and supplier sectors, as well as effects resulting from government spending of excise and sales tax revenues from tobacco products, and personal and corporate income taxes and FICA taxes from those in the core and supplier sectors.
The 1996 American Economics Group report, the most recent industrysponsored, publicly available report, describes the economic impact of tobacco in 1994. This report concludes that tobacco generated over 1.8 million jobs that produced $54.3 billion in wages and benefits, while total taxes generated from tobacco were almost $36 billion.
Most of tobacco’s economic impact comes from the supplier and expenditure-induced sectors rather than the core sector. For example, jobs in the core sector accounted for less than one-quarter of the total, whereas incomes earned in the core sector accounted for just over onesixth of the total. Similarly, according to American Economics Group estimates, less than half of the taxes generated by tobacco come from sales and excise taxes on tobacco products, with the majority coming from personal, FICA, and corporate income taxes. Within the core sector, the jobs most clearly dependent on tobacco (those in tobacco growing, auction warehousing and distribution, and manufacturing) and the incomes they generate account for a small share of the core sector totals.