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Increased taxes on cigarettes may sound like a good idea, but in truth they devastate the poor, hurt local businesses, and result in diminishing returns.
Studies show that the poor are disproportionately more likely to smoke and bear the greater burden of higher cigarette taxes. Per pack, taxes range from 7 cents in South Carolina to $2.57 in New Jersey, in addition to the 39-cent federal tax and any taxes added by cities or counties.
In New York City, where cigarette taxes add up to $3.39 a pack, a family of four with an aftertax income of $18,000 per year and one smoker with a two-pack per day habit will lose more than 13% of its income to cigarette taxes. Perhaps such families’ money could be better spent on warm winter coats and boots for children, replacing worn-out tires for safer travel, or paying an overdue utility bill.
Local businesses, too, suffer as a result of cigarettes taxes. Due to a reduction in disposable income, community vendors and retailers will have fewer customers buying their goods, another straw on the camel’s back for an already stressed economy.
Rather than quitting, some smokers will cease buying cigarettes from their local convenience stores and smoke shops, opting to purchase them online or by mail from discount vendors. To satisfy the black market, crooked entrepreneurs will endanger everyone from store clerks to truck drivers in order to obtain enough cigarettes to satisfy their clientele.
If it is true, as studies indicate, that a 10% increase in cigarette tax results in 4% fewer smokers, it means that once those smokers quit, it will diminish tax revenues that state and federal governments have come to rely upon. To compensate for these diminishing returns, will a well-meaning government official decide to institute a tax on high-fat foods or whatever the next enemy du jour may be?
Eliminating cigarette taxes in the U.S. would cut pack prices by an average of about $1.50. Such a sharp price drop would increase by at least 4 million the number of kids alive today who will grow up to become addicted smokers. With more new smokers and fewer quitters, adult smoking would also rise quickly. That means more smoking-related disease and disability and 2 million more deaths due to smoking over the next generation.
Cutting cigarette prices increases smoking most sharply among those with lower incomes. So poor and middle-income households would suffer the lion’s share of the new health problems and deaths caused by eliminating cigarette taxes. Indeed, smoking not only hurts and kills smokers but also endangers their families and friends via secondhand smoke. For just one horrible example, consider that more than 4,500 babies die each year from smoking-caused birth complications and sudden infant death syndrome. Abolishing cigarette taxes would double that toll.
The increase in the number of smokers that would come from eliminating cigarette taxes would also raise nationwide health costs by $90 billion over the next several decades. Smokers, on average, die earlier, but they still have much higher lifetime health costs. That means bigger burdens on governments, businesses, and households, especially lower-income families with no health insurance. The higher smoking levels among lower-income and other households would increase their spending on a range of other smoking-related costs as well.
Revoking all cigarette taxes would also reduce annual government revenues by more than $20 billion, prompting major increases to other taxes or drastic cuts to federal, state, and local programs that benefit low- and middle-income families.
Rather than repeal cigarette taxes, we should raise them. The science is clear: Increasing cigarette taxes is one of the most effective ways to reduce smoking and its many dangers and costs, especially among youth and lower income families.Opinions and conclusions expressed in the BusinessWeek.com Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.
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