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.