Snuff the Facts

A little background. Conventional wisdom is that non‐​smoking taxpayers subsidize smokers through various public programs such as Medicare and Medicaid. Therefore, it’s assumed that policy reforms that make smokers and tobacco companies pay money to state governments are sound public policy. The only difficulty with this logical exercise is that the premise that non‐​smokers subsidize smokers just isn’t true.

Professor W. Kip Viscusi of Harvard Law School calculates that the extra health‐​care costs of smokers are about $.50 per pack of cigarettes. But smokers do not live as long as non‐​smokers and, thus, smokers create savings for taxpayers that usually aren’t considered. Because smokers die earlier than non‐​smokers, taxpayers save expenditures that otherwise would be made for pensions as well as nursing home care and other costs related to conditions associated with old age.

When those savings are computed (at a 3 percent discount rate), they more than offset the costs that smokers create. Smokers actually save society about $.32 per pack smoked. Not only do smokers save taxpayers money, smokers also pay an average of $.53 per pack in federal and state taxes. And given the approximately 30 billion packs of cigarettes smoked a year in the United States, smokers pay $15.9 billion more than would be necessary if we were to follow the principle that people should pay for the costs they impose on others. In effect, smokers pay taxpayers for the right to smoke in addition to the savings that they create for taxpayers by dying early.

While smokers create net benefits for the nation as a whole, does the picture change when viewed state by state? You’ll hear state officials argue that tobacco taxes and pension savings accrue largely to the federal government, and, therefore, state attempts to recoup monies from tobacco companies are justified. That sounds reasonable, until you look at the facts.

The highest cigarette‐​related health‐​care costs of any state are in New York, where they come to about $.07 per pack. But state pension and nursing home savings offset those medical care costs, and then some, so that New York actually benefits to the tune of about $.034 per pack of cigarettes consumed. And because New York has a very high state tax of $.56 per pack, smokers pay a net amount of about $.59 per pack for the right to smoke and not impose costs on others. Even in Virginia, which has the lowest tax of any state, $.025 per pack, smokers pay about $.10 more per pack than the costs they impose on taxpayers.

What happens if we consider just health‐​care costs? Most people believe that a smoke‐​free society would have lower health‐​care costs and, thus, approve of public policies, like higher cigarette taxes, that reduce smoking. According to the surgeon general, for example, the average lifetime health‐​care costs of smokers are greater than those of non‐​smokers by about $6,000. But a recent article in the New England Journal of Medicine estimated that if every smoker quit today, health‐​care costs would drop in the short run and then climb higher in two or three decades because of the increased life span of ex‐​smokers.

Smokers shoulder a heavy government‐​imposed financial burden. Some of it they pay directly, through cigarette taxes. Some they pay indirectly, as in the proposed $368.5 billion liability settlement between the states and tobacco companies, which will ultimately come out of the pockets of cigarette consumers. And that burden is justified by neither the costs smokers create for others nor reduced health‐​care costs.

Now, back to the point with which we began. How well off are the people who bear that burden? Families with less than $30,000 a year in income earn only 16 percent of total income in the United States, but they pay about 47 percent of federal tobacco taxes. In addition, African Americans are more likely to be smokers than are whites. Thus, absurdly heavy taxation of cigarettes hits hardest those who can least afford it and redistributes resources from poorer blacks to more affluent whites.

So why are politicians going after smokers and tobacco companies? For the same reason that Willie Sutton robbed banks: there’s a lot of money there. The 25 percent of the population that smokes is a convenient unorganized source from which the rest of the population can extract revenue. Taxing smokers because we can take their money easily is theft (more often than not from people who can ill afford to be robbed) dressed up in good intentions.