Friday, July 15, 2005

IN MY VIEW: Cigarette Taxes to Balance State Budgets are Not Only Unfair, They are Harmful for Tobacco Control

While I have already argued (post 1; post 2; post 3) that cigarette taxes designed to balance state budgets are discriminatory, regressive, and unfair because they force smokers to pay for services that the state should otherwise be providing, I here will argue that such taxes are detrimental to tobacco control. There are two major reasons for this:

First, these taxes create a fiscal dependence for the state on cigarette consumption. By relying on cigarette consumption to fund critical state budget items or to balance state budgets, these taxes make the state dependent on cigarette consumption. This policy removes any incentive for state lawmakers to take any action that may decrease cigarette consumption. For public health groups to support or applaud such initiatives is like driving a stake through the heart of the tobacco control movement in those states, because it effectively eliminates any chances for effective tobacco control policy or programs at the state level. In fact, I can't think of anything worse one could do to hinder state tobacco control efforts.

Second, these taxes stave off the potential for effective state tobacco control policy for many years. They do this in two ways. First, they give legislators political cover. By voting for a cigarette tax increase, they can say that they have supported a tobacco control measure, and it becomes more difficult for public health groups to put pressure on these legislators to support tobacco control measures in the future. Second, they make it more difficult to get major tobacco policy measures on the legislative agenda in the future and they devastate any potential for the most effective intervention in tobacco control: the creation of comprehensive, statewide tobacco control programs (which could otherwise be funded from cigarette tax revenues).

This is one reason why I cringe when I see groups like the Campaign for Tobacco-Free Kids praising the Minnesota legislature's decision to balance its budget by increasing the cigarette tax as a huge public health victory. It's actually not a victory for public health. It's a devastating blow to the chances for any meaningful and effective state-level tobacco control for quite some time.

But of course, the more significant reason why I cringe is because I simply think it is wrong to balance the state's budget on the backs of smokers - period.


norbert hirschhorn said...

By these arguments, any value-added tax specific to the product
-- alcohol, gasoline for instance
-- is regressive and falls differentially on persons using such products; particularly in the instance of gasoline, on poorer persons who are more dependent on their cars to find or get to work, school, health care, especially since public transport is so abysmally funded. The other notion, that taxes or tax relief may be used to design a social policy, would also be suspect, although we have accepted such a premise since the time the constitution was amended to permit the income tax.

Indeed, these are all classic libertarian arguments, best put forward by John Stuart Mill in his tome, "On Liberty." In chapter five, for instance, he argues against taxation of alcohol as being just another step towards prohibition of a personal good. HOWEVER, he goes on to say,

"But it must be remembered that taxation for fiscal purposes is absolutely inevitable; that in most countriesit is necessary that a considerable part of that taxation should be indirect; that the State, therefore, cannot help imposing penalties, which to some persons may be prohibitory, on the use of some articles of consumption. It is hence the duty of the State to consider, in the imposition of taxes, what commodities the consumers can best spare; and a fortiori, to select i preference tose of which it deems the use, beyond a very moderate quantity, to be positively injurious. Taxation, therefore, of stimulants, up to the point which produces the largest amount of revenue (supposing that the State needs all the revenue which it yields) is not only admissable, but to be approved of."

Were Mill blogging today, he would approve of taxes on tobacco.

Your other argument, that tobacco taxes might impede tobacco control, flies in the face of experience: states with the lowest taxes have the weakest tobacco control programs, and the greatest prevalence of smoking; while states with the highest taxes have the strongest control programs and the lowest rates of smoking.

Francis Thompson said...

To follow up on Bert's last observation: high cigarette taxes and strong tobacco control appear to be correlated in all sorts of places around the world. South Africa, for example, went from low taxes and virtually no tobacco control under apartheid to high taxes and some of the best legislation in the world under the ANC. In Europe, the Nordic countries have long had high cigarette taxes and (with the exception of Denmark), also have the strongest tobacco control measures. More recently, France has seen major tax increases and is now making big strides on other measures. In Canada, British Columbia long had the highest taxes in the country and also had the best tobacco control legislation and the lowest prevalence.

There are, of course, a few examples that do not fit this pattern. Brazil has good legislation, but low prices; Britain under Thatcher had a series of tax increases but not much else. But Britain is actually an interesting case -- the reduction in prevalence caused by high taxes has made things like smokefree places legislation politically more viable, and Britain is now catching up quickly.

When governments raise cigarette taxes, they may be more likely to do other positive things on tobacco control, precisely because they are worried about the taxes being perceived strictly as a cash grab.

Of course, correlation does not, in and of itself, prove causation. But there isn't even any prima facie evidence to suggest that tobacco tax increases constitute a barrier to other tobacco control measures. Since they are also extremely effective at reducing consumption, inducing quitting and preventing uptake, it is hard to see on what basis public health people could oppose them.

Michael Siegel said...

These observations demonstrate my point. Becacuse the reason why there is a correlation between high cigarette taxes and other tobacco control policies is that the cigarette tax increases are specifically seen as a tobacco control intervention. This is why they correlate with other tobacco control policies - not because the taxes led to an increase in other policies, but because both reflect an underlying concern about the need for tobacco control.

It is specifically when legislatures increase tobacco taxes for OTHER reasons (such as balancing a state budget) that they harm tobacco control efforts. Becuase doing so demonstrates a lack of concern for tobacco control intervention. Minnesota is a prime example of this. The legislature has decimated its effective tobacco control program. In fact, the increase in the tobacco tax there correlates with the destruction of state tobacco control.

Francis Thompson said...

What is the socially optimal price for a product that:
-- kills 50% of its long-term users
-- is bought primarily by unwilling consumers (i.e. the vast majority of smokers report that if they had to do it again, they would never have started smoking)
-- has a price elasticity of demand of -0.4 (i.e. a 1% increase in price causes a 0.4% decline in consumption)?

I can't think of any rational basis for a ceiling, apart from: the level at which it becomes impossible to suppress illegal trade at socially/financially acceptable levels of enforcement.

There is no conceivable way that the levels of revenue generated even by a cigarette tax level that matches the OECD average could usefully be spent on tobacco control. For example, the Canadian province of Ontario has now bumped its tobacco control budget up to $50 million, far and away the largest in the country. The province rakes in well in excess of $1 billion in tobacco taxes.

The "reasons" invoked by legislatures for raising tobacco taxes seem pretty secondary to me -- even if done for purely fiscal reasons, cigarette tax increases save many, many lives.

None of which should stop anybody from pointing out the inconsistency of simultaneously raising tobacco taxes and slashing tobacco control programs, of course.

Michael Siegel said...

Thanks, Francis for all these thoughtful comments on the subject. The only thing I want to add is that I guess I don't see the legislative purpose behind a policy as being "secondary." I think the purpose of the legislation is perhaps the most important consideration in a public policy analysis.

For example, I'll be honest: I don't really see anything inherently wrong with requiring schools to allow a moment of silent meditation at the beginning of the school day. But the purpose of this type of legislative requirement (which I believe has been passed in some states) is ostensibly to be the first step towards the institution of prayer in the schools, which I think is a clear violation of the separation of church and state. So while I view a moment of meditation as being relatively innocuous, I oppose such legislation SOLELY because of the underlying purpose.