Commentary

Children, Say ‘Thank You for Smoking’

The Democratic Congress and President Bush continue to battle over whether SCHIP, the government-sponsored health care program for children, should focus on covering most uninsured children or just children in low-income families. Regardless of the focus of the final legislation, an important question remains: who’ll foot the bill for it?

Congress seems happy to pass the burden on to tobacco smokers. The bill recently passed by Congress and now on the President’s desk would more than double the federal tax on cigarettes and raise cigar taxes to as high as $3. Supporters of the proposal see the higher tobacco taxes as a beneficial “two-fer”: not only would the tax increases raise more money for the children’s health program, they would financially penalize smokers.

Proponents claim government should use taxes to discourage tobacco use because smokers’ healthcare costs are partly borne by others, and smokers should be taxed to cover the expense. Tax proponents also argue that higher tobacco taxes will induce smokers to lead healthier lives.

Smoking in the United States is already declining significantly — largely as a result of public awareness of its dangers, not higher taxes. The declining number of smokers makes cigarette tax revenue unstable. Congress’s Joint Committee on Taxation projects that if the new tax rate is implemented next year, tobacco revenues will fall nearly 10 percent over the next decade. As Dr. Michael Siegel, professor at the Boston University School of Health has noted, this is a risky way to fund the program. “This is a situation where you’re advocating a specific amount of money to a program based on cigarette revenue,” he says. “So if that cigarette revenue falls, by definition, the revenue available to the program is going to fall.”

Tobacco use is linked to increased risk of a host of cancers and other diseases, and some of the costs of fighting smoking-related diseases are passed on to taxpayers. But cigarettes are already heavily taxed, and the resulting tax revenues already more than offset the public costs of smoking. A landmark study of 1995 smoking data by esteemed risk analyst Kip Viscusi, now of Vanderbilt University, showed that taxes in that era more than offset the broad range of social costs from smoking.

…[I]t’s unclear that the benefits of higher cigarette taxes outweigh their costs.”

Nor does the “make smokers healthier” argument justify a tax increase. It’s true that higher tobacco taxes result in declines in cigarette consumption. But smoking has proven relatively inelastic — that is, the increase in the price of cigarettes after the tax is larger than the decrease in smoking as a result of the tax. And studies have found that smokers compensate for higher prices by switching to brands with higher tar and nicotine content, and they smoke their cigarettes more intensely, increasing their intake of carcinogens and other hazardous substances. These unintended consequences partially offset the expected health gains of tobacco taxes. So even if we accept that government has a paternalistic role to play in altering adults’ choices about smoking, it’s unclear that the benefits of higher cigarette taxes outweigh their costs.

SCHIP’s advocates believe the program is critical to providing healthcare to children. That’s debatable. But if Congress and the President decide to expand the program, they should cover its new costs with general tax revenues, not taxes on smokers alone. Higher tobacco taxes are unfair, unadvisable, and unlikely to bring in enough money.

Thomas Firey is managing editor of the Cato Institute’s magazine Regulation. Jacob Grier is a writer based in Arlington, VA.