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The Pickpocket State vs. Tobacco

by Jerry Taylor

This article appeared on cato.org on September 30, 1996.

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Although the evidence is mounting that government can't do anything very well, it's undeniably true that there is one thing it remains quite good at: finding new and ingenious ways to pick the pockets of the American people. Like all good pickpockets, elected officials are adroit at identifying “marks,” have an instinct for which pockets are most heavily loaded with money, and are most successful when their victims are from the socio-cultural “underworld.” And that's all you really need to know to understand why Florida, Massachusetts, Mississippi, Minnesota and West Virginia have filed suit against the tobacco industry to “recover” smoking-related Medicaid costs, and why the Ligget Group, the smallest of the major tobacco firms, has found their pockets now empty.

Of course, politicians don't advertise themselves as pickpockets; there's always some high-minded justification proffered for taking money that doesn't belong to them. In this particular case, they complain that states have been forced unfairly to foot the medical bills for those on Medicaid who smoke and that the tobacco industry, not the state taxpayer, should be paying the bills. Although it sounds fair enough, the complaint doesn't hold up to scrutiny.

First of all, tobacco consumption is simply not a net burden on taxpayers. The Florida suit, for example, alleges that the state spends $290 million annually on smoking-related illnesses. Yet in 1994 tobacco taxes added $1.9 billion to Florida's coffers, to say nothing of the $2.9 billion it contributed to state worker compensation funds. Nor is smoking a net burden on society as a whole. Economist W. Kip Viscusi of Duke University calculates that the total social cost of smoking-related disease, sick-leave, fires, excess life insurance, and foregone Social Security taxes amounts to $1.32 per pack. Yet, because smokers on average die earlier than nonsmokers, they save society $1.47 per pack in costs that otherwise might have been incurred for nursing homes, pensions payments, Social Security benefits and other insurance costs. When one considers that smokers additionally pay tobacco taxes that average 53 cents per pack, one is hard-pressed to show that smokers are a net burden on anyone. If anything, society owes them money.

Second, the uncomfortable fact remains: if people don't die of a smoking-related disease, they're going to die of something else. The states' lawsuits implicitly assume that, if those Medicaid recipients didn't contract cancer or whatnot from smoking, they would not be imposing any costs on the state. Nonsense: they would contract heart disease, pneumonia, Alzheimer's disease, prostate cancer, or any number of things. They would not live forever. The relevant question here is, “do smokers impose greater burdens on Medicaid than nonsmokers? Given the staggering costs associated with extended nursing-home care and the cascading medical bills related to old age, I doubt it. Viscusi's data suggests, at best, a wash.

Third, the tobacco industry is not “forcing” state governments to cover the smoking-related medical bills of the poor; the federal government is. If states don't like footing those bills, their complaint is with Congress.

Finally, the logic of the states' argument is pernicious in the extreme. One could just as easily argue that obesity-related diseases (300,000 deaths a year and $70 billion annually in medical costs) are a huge burden on state Medicaid programs and that snack food manufacturers ought to pony up. After all, their products have no nutritional value, are a leading cause of obesity, are disproportionately consumed by the poor, and are highly addictive (remember Lay's Potato Chips: “Bet you can't eat just one”?). Or what about meat consumption? According to a study last year in the peer-reviewed journal Preventive Medicine, meat is also a major cause of obesity and is directly responsible for $29 billion to $61 billion of the nation's medical costs.

Such arguments, of course, would be laughed out of the political arena, but that could change. A little more than a year ago, the New York Times published an op-ed from Kelly Brownell, director of the Yale Center for Eating and Weight Disorders, calling for a "fat tax" on snack foods and additional undefined steps to keep unhealthy foods away from children. The point is, the argument for going after the snack food industry (or more immediately, the alcohol industry) to recover Medicaid costs is no different from the logic of going after the tobacco industry. One strikes us as absurd whereas the other does not. Why?

Unfortunately, the logic of socialized medicine leads us into this policy cul-de-sac. If we're all paying everyone else's medical bills, then each individual's eating habits, exercise regimen, recreational pursuits and social preferences ultimately become everyone's legitimate business. Of course, holding industry accountable for lifestyle decisions is more viable politically than going after everyone not living the life of a health fanatic, but the effect is the same. The temperance movement of the 1920s demonstrated the futility of a direct assault on “sin.” Our modern temperance movement realizes that bankrupting the peddlers of “sin” will accomplish through the back door what prohibition cannot accomplish through the front. A decent respect for a free society demands that we say no to both the pickpockets and the prohibitionists.