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March 7, 1994
"As a Disincentive to Smoke, a Cigarette Tax Makes Sense"
San Jose Mercury News
By Timothy Taylor
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AT FIRST glance, there's a certain rough justice in President Clinton's proposal to raise the federal cigarette tax to 75 cents a pack as one way of financing his health care plan.

With all due respect to the tobacco lobby, smoking is hazardous to your health. But under Clinton's plan, health insurance companies could not charge different premiums based on pre-existing conditions, age or health habits -- including whether someone is a smoker. From this view, the higher cigarette tax can be viewed as an alternate way of making smokers pay for their higher health costs, even as they pay the same health insurance premiums as everyone else.

But go one step deeper, and matters aren't quite that simple. After all, is a tax of 75 cents a pack too low to reflect the social costs of smoking? Too high? Or about right? The economic studies of this question have produced some surprising results.

In an often-cited 1989 study, a group led by Wilfred Manning of the University of Michigan estimated the extra costs that smokers impose on others through collectively funded health insurance, pensions, disability insurance, group life insurance, fires, motor-vehicle accidents, and the criminal justice system. According to their results, a tax of 22 cents a pack would be about right to cover these external costs of smoking.

They concluded in 1989: "On balance smokers probably pay their way at the current level of excise taxes."

However, Manning's group revisited the issue a couple of years later and added the health consequences of second-hand smoke, as well as the costs of neonatal intensive care for low birth-weight babies born to mothers who smoked during the pregnancy. With these factors included, the cigarette tax needed to cover the social costs of smoking climbs to 66 cents a pack, close to Clinton's figure. Another researcher found that including the long-term physical and intellectual consequences of the low birth-weight babies raises the appropriate cigarette tax much higher, to $4.80 a pack.

Bringing in the costs for low birth-weight babies may seem to clinch the case for a considerably higher cigarette tax, but it actually opens the door to a strong case for a lower cigarette tax.

For starters, all men and non-pregnant women who smoke -- which is to say, the overwhelming majority of smokers -- can argue that their smoking isn't creating particularly high costs for society. Why should they have to pay higher cigarette taxes because pregnant women won't quit for nine months?

Moreover, in the long-term, smokers may actually pay more into government programs than they take out. As Thomas Schelling of Harvard University pointed out some years ago, "It is not at all evident that over their lifetimes smokers incur greater medical costs than non-smokers." He pointed out that most 60-year-olds diagnosed with respiratory cancer die within two years. If they had instead lived another decade or two, cancer-free, they could easily run up just as large medical bills for other illnesses or nursing home care.

Moreover, smokers pay into Social Security and private pensions all their lives, just like everyone else, but when they die a decade or two early, they don't draw out nearly as much.

On the available evidence, it simply isn't correct to argue that a higher cigarette tax is just a matter of fairness. Precisely because smoking so easily leads to an early, rapid death, most smokers (except for pregnant women who smoke) are probably already paying society something close to the costs that they impose on the rest of us.

This doesn't mean that the cigarette tax shouldn't rise, but it means a different justification is needed.

One argument is that the government is running huge budget deficits, smokers are an unpopular minority, and the majority has the power to make them pay more. In our democratic system, the majority often imposes costs on the minority, as any owner of a rental apartment or a business will quickly inform you. But of course, the power to impose taxes doesn't make it right.

However, combine the government's need for revenue with a second point: A higher cigarette tax discourages smoking, especially by teenagers just getting started.

According to various studies, every 10 percent increase in the price of smoking will cut the demand for cigarettes by 12 percent in the 12-19 age group, by 7.4 percent for those from 20-25, and by 4.4 percent by those from 26-35.

Higher cigarette taxes should not be imposed in a spirit of finding a reason to blame smokers for their ugly, deadly addiction. The primary problem with smoking is not that it is financially victimizing the rest of us. The problem is that those who choose to smoke -- children and parents, friends and families, co-workers and neighbors -- are shortening their lives before our very eyes.

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