BusinessWeek: March 15, 1993

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ADD $2 TO THE COST OF A PACK OF CIGARETTES...

The Clinton Administration is making no secret of its intention to call for a cigarette tax hike to help pay for health-care reform. The logic of such a tax hike seems impeccable. While the federal excise tax on cigarettes has declined 45% in real terms in the past 20 years, smoking has helped push up health-care spending--currently contributing to nearly a fifth of all deaths and costing the nation some $65 billion a year in health-care outlays and lost productivity.

Insiders say the Administration could seek to raise the current federal tax of 24 per pack by as much as $2. That's the number being pushed by the American Medical Assn. and the Coalition on Smoking or Health, which represents several nonprofit health organizations. Says Matthew Myers, counsel to the coalition: "A $2 increase would force smokers to pay for the costs they impose on society and would induce many people to quit smoking or avoid the habit."

Not surprisingly, the tobacco industry responds that such a draconian increase would be highly regressive, hitting lower-middle-class and poorer people the most. Indeed, surveys indicate that smoking prevalence is highest among those earning less than $10,000 a year and declines as income levels rise.

But proponents of an outsize boost in taxes claim that the regressivity of the tax would be offset by its intended use. For one thing, a $2 tax hike would produce $30 billion to $35 billion a year in extra federal revenues. "That's roughly the initial cost of providing minimum health insurance to the 36 million Americans who currently lack coverage," says Myers. "And many of these are low-income workers who smoke or live with smokers." Moreover, less-affluent smokers are the most likely to respond to a big price hike by kicking the habit.

While that smacks of social engineering, both cigarette taxes and the average retail price of a pack of cigarettes in the U.S. today--about $1.90--are lower than in almost every other industrial country. In mid-1992, a pack of smokes in Germany, Britain, Canada, Ireland, and Norway cost from $4.13 to $5.80.

GENE KORETZ
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