Cigarette taxes: The poverty punishment
 

For those of you not familiar with the Canadian press, the Globe & Mail is Canada's closest approximation to the New York Times; a national newspaper.

Today Neil Reynolds, a business reporter, wrote a column with a completely different view of tobacco taxes. Worth reading as a perfect example of unintended consequences.

Cigarette taxes: The poverty punishment.

I should note that I am definitely not trying to start a debate on smoking; I'd just never thought of this consequence.

I take two things from the article:

1. There may be some causality between smoking and poverty, in the sense that if you smoke you're likely to be both not very wise with your money (you're spending it on something that will kill you, often in a long, painful manner) and you're less productive at work, so less likely to advance.
   
2. The taxes aren't nearly high enough, since the prices aren't discouraging enough smokers and the tax revenue is not enough to offset the increased cost of healthcare that the government is saddled with as a result.

Not sure the tobacco tax rates have anything to do with anything past the simple fact that it is an easy tax to get passed.... nobody willing to support the smokers who are poor, don't vote, and are generally marginalized and disenfranchised.

So you don't believe in market forces then? Increase the price and demand will decrease, won't it?

Actually, no. Demand would be unchanged.

I'm speechless.

Well, can't have that. The quantity of a product purchased will go down, generally, as price goes up. The demand curve, however, is unchanged since it includes the quantities that would be purchased at all relevant prices. Some old timers, like me, use the demand curve to mean the same thing as "demand." Perhaps the younger generation has a better idea.

Well, since the demand curve is used to describe the "demand" at a given price, I hope you'll accept that while the curve doesn't change with price, the demand does.

Semantics aside, I think taxing products and services that cost the tax payers money is a great way to reduce the expense to tax payers while ensuring that companies that produce those products pay their fair share of taxes. These companies should be encouraged to eliminate the cost to the tax payers (safer products) thereby eliminating the need to tax them. Since the alternative is government intervention in the form of strict regulation, I would think that alleged conservatives would be in favor of this!

The problem with the sin tax on cigarettes as I see it is that the money is not spent on what the government is saying they are going to spend it on.

If it was used for healthcare for those who can not afford it (smoker or not) as it is stated instead of things like balancing the budget, building new roads, or a line item in the budget then it would really be a tax on something to set off the negative things it does.

But, when the states won against the tobacco companies, and when all the places have been upping the taxes, that is not what they are spending the money on.

http://www.stateline.org/live/detail...ntentId=178571

This to me is the sin.

OK, there is a relationship between poverty and smoking. Or to quote the supposed report from a team of "World Bank scholars" (whatever that is supposed to mean), poverty is a reliable predictor of smoking.

But Neil, in an incredible jump of illogic, takes that to mean that BECAUSE people are poor, they will smoke. Which is not borne out by any evidence that I've seen. And is not the same as a relationship between the two factors. It could equally be true that because people smoke, they are poor.

Trevor

@schwartze
It's mostly a shell game I think. My state put most of the windfall tobacco tax proceeds (taxes and lawsuits) into medical care, much of which was unrelated to smoking. Then, of course, when time came to do the budget the medical care piece (read that as the state teaching hospital and Medicaid) didn't need as much money as they would have needed absent the tobacco windfall. Hence, that freed up all the money that would have gone to medical care to go to the politicians' pet projects ..... usually education, colleges/universities, cut the sales tax on food, etc. It's all a right pocket, left pocket deal.

@cwt
I think the conservative response would be, "Why is government interfering with individual choices. That is social engineering."

We should tell Obama about that.

From all reports, he is already painfully aware of the problems caused by his smoking.

Trevor

Since none of the posters here are "poor" by any definition the World Bank would use, I think they overlook the scarcity of pleasure in the lives of the poor. Here in Nova Scotia where sin taxes have always been the norm and are steadily rising, I note that with the exception of high schoolers, almost everyone who I see smoking and a lot of the folks I see in the beer store are probably poor by this forum's members' standards. To the poor (the point of the article, I thought) smoking, sex, and a few beers are their only pleasures.

I know that many of the younger posters here have probably never smoked and so don't appreciate that to those who do, it's a pleasure. I should, I suppose, admit that I smoke -- I have smoked a briar pipe for over 50 years now -- a habit I enjoy occasionally and that doesn't seem to be harming me significantly since there is nothing wrong with me at 72. I smoked a pipe when I rowed bow seat in a lightweight 8. I never smoke it in public places or in my own home or car. Even when smoking in restaurants, airplanes, theaters, bars, etc. was legal, pipes and cigars weren't, so I had no expectations in that regard. Fortunately, I can afford and choose to pay the ridiculous price charged here, but many who cannot smoke anyway.

The poorest state in the US on a per capita income basis is Mississippi. Be interesting to know how the percentage of the population of smokers in Mississippi compares to the US in general.

How is the government recouping loses caused by some other entity social engineering? And if it is, so what? Isn't it more important that the government be fiscally responsible?
The exception that proves the rule!
I think that's a cop out used by rich and poor alike to do all sorts of things that are bad for them. Poor little rich kids do drugs and cigarettes too!

As for there being more poor smokers than rich, for starters there are more poor than rich people by a wide and growing margin. Second, the decision making that leads to smoking at a time when it has long been known to kill seems to indicate very poor judgement. There's no reason to think this wouldn't affect financial decisions as well. Heck, deciding to smoke is a very poor financial decision too!

No point in arguing about numbers.... here they are:

By state percentage comparison of smokers:

http://www.cnn.com/2009/HEALTH/01/09...l#cnnSTCOther1

Percent of smokers by income level:

http://thelede.blogs.nytimes.com/200...ncome-charted/

Agree with Nova Scotian, smoking is/was pleasurable.

As for Obama, I agree his potential for promotion is dismal.:)

This is a big problem with sin taxes. If they apply them to areas other than those directly affected by the tax, it's a bargain with the devil.

Because if your roads and schools start depending on the revenue from a sin tax, then you now have a basic conflict of interest. They're your funding source, so you can't let them disappear...now you need people to smoke!

I think that's more an earmark problem than a tax problem. Besides, nothing is perfect. Taxing the sin is the right thing to do, especially when the sin costs the taxpayers money.

If the government pays out $100 for cigarette related health issues and taxes $100 for cigarettes, then I don't care where the accountants say the $100 goes because costs are balanced with revenue. The real problem is that for every $100 in costs due to smoking there's probably less than $10 in taxes.

It would be more precise to say that the quantity demanded will change. This is not the same as the demand. People still want to buy x amount, but can only afford y.

I actually agree. I don't smoke, but I sure love my beer and tequila.
If my state added another dollar or two onto each sixpack in taxes that would go towards funding something important, I would not really complain.

The case of Norwegian slot machines
 

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For a long time, Norwegian slot machines had to benefit sports teams and charitable organisations -- and many used them to fund their worthwhile programmes. The problem arose when the authorities tried to do away with the slot machines to reduce the woes of gambling/betting addiction. Even though they had long since warned this would happen, and stated the timeframe, those organisations became junkies crying for a fix.
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Burning down your house
 

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By the way, here in Norway a pack of 20 cigarettes costs about NOK 75, which is roughly $ 13.

I suspect that many smokers in the course of a lifetime torch off values equivalent to a house. So, yeah, at least here you can probably find some correlation between house ownership figures and smoking statistics. ;)

In the third world I’m sure you can find more striking correlations.
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Ouch! That's more expensive than pot (I'm told). Have the bootleggers come in yet??? Won't be long, I suspect, at those prices. Already happening here at $5 a pack.... nothing big time yet, but still.

The thing is, that just to get the government to break even (tax revenue vs health costs) the tax on a pack of cigarettes would need to be closer to $20. If you assume that the average smoker would cause only $100,000 in health issues to themselves and/or others over a thirty year period, then financing that at 5% interest would be about $17.89 per pack at a pack a day.

Of course, $100,000 is an arbitrary and very likely low number considering the larger number of sick days that smokers take before being diagnosed with a problem that by itself can cost well over $100,000, not to mention second hand illnesses.

How is the government being charged all these healthcare costs again? Are you just talking about medicare?
If I get cancer from smoking I have private insurance that gets that bill.
If I miss work and take sick days, my company incurs those costs.

:D
You should pay more attention to the health care debate in the US! One of the major goals is to stop insurance companies from dropping the policies of sick people because when they do, the government ends up paying the bills.

You have health insurance at work, and so you think you're covered. The reality is that if you get an expensive illness like cancer, there are a myriad of ways for your insurance company to drop you. They can drop your entire company, or raise the company's rates so high that they'll cancel the policy, and you'll likely end up losing your job and Cobra is far too expensive, etc.

I remember reading a while ago that some German companies give non-smokers extra days paid holiday, to compensate them for all the goof-off breaks they aren't taking.

I think the economic argument is a non-starter in the sense that if smoking shortens life spans, the costs incurred for late-life health care and drugs go to zero and compensate (given all the taxes collected from smokers) for the increased costs earlier. A non-smoker stands to live longer and will incur those late-life costs.

"We smokers are people too!"
"Yes, but for not as long"

That assumes that late-life costs don't apply to smokers. They not only apply, since smoker deaths are not quick or cheap, but the smoker has has less time to contribute to society, making those costs are greater for society.

...sigh... I had a great comment, but I deleted it. Logic doesn't seem to apply to this conversation (and I'm not just referring to cwtnospam).

Seriously people, are we really going to have another debate on this? I'm yet to see anyone change their opinion on the subject, why waste your breath (or finger power).

Excellent point, Jay. Recall that in my original post in this thread I said:

You haven't? Years ago, more than half the population smoked, you couldn't find a restaurant that didn't reek of the stuff, and even at work you had to put up with it! Seems like lots of people have changed their minds about it.

Here's a more conservative estimate of the costs of smoking:
http://usgovinfo.about.com/od/medica...okingcosts.htm
http://www.cancer.org/docroot/PED/co...and_Cancer.asp

Using those numbers we still get higher costs than tax revenue:
Population 300,000,000
Percent who smoke: 20%
Number who smoke: 60,000,000
Cost per year: $167,000,000,000
Cost per smoker/year: $2,783.33
Cost per smoker/month: $231.94
Cost per pack: $7.48

Honestly, my first thought on reading that was that the article was meant to deflect attention away from smoking as an issue. Better to cast it as a smokers rights issue where the poor smoker is being abused. It's been tried before, but it never sticks because it's just not believable.

You're a conspiracy theorist, CWT. :)

I'm simply not that sly. I thought the article was interesting because it pointed out who was hurt, but not dissuaded, by high tobacco taxes. Jay is right -- like a lot of current issues (and past ones two) there is really no middle ground -- folks tend to be binary, fer it, or agin it.

I can't say I buy the argument that the poor are more likely to smoke because it's an appetite suppressant and they can't afford to risk obesity.

It doesn't require a conspiracy theory. People will naturally use popular arguments to back up what they want. It's to be expected that smokers will try to use any means to slow or stop restrictions on smoking and/or taxes that affect it. It's unlikely that if you weren't a smoker you would even have been interested in the article. Most nonsmokers just want smoking to go away, when they think about it at all.

Sigh...!
 

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Folks, I seriously propose that we not expand this thread into yet another general discussion on smoking and health care. Been there, done that.

As Jay points out – that’s a waste of breath. (And some of us need our breath more than others.)

Please go back to NovaScotian’s initial post and limit it to that topic.

-- ArcticStones
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I think you're missing the point. The original post amounted to: here's an argument in favor of smokers and smoking, but please don't argue against it!

As for it being a waste of breath, I've already pointed out that over time (and through millions of discussions) the tide is shifting away from smokers. That's a good thing.

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What say ye?
Is it best to take a holiday from this topic? ;)
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Agree, ArcticStones;

We've all had our say on the article and don't need to discuss smoking itself any further.

Adam