The phrase “wildly popular tax increase” may sound like an oxymoron, but President Obama’s new budget proposal includes a levy that may meet that standard.
The president wants to raise the federal levy on cigarettes from $1.01 a pack to $1.95, and use the proceeds to expand early childhood education. The tobacco lobby is understandably outraged, having taken a 64-cent hit just four years ago, and some critics question the fairness of forcing people struggling with an addiction to finance new social programs.
But taxes are a proven antidote to the nation’s leading cause of preventable death, and this one comes at an auspicious moment. Besides generating $78 billion for a critical children’s initiative, it could spare a half-million young people from premature death. And if past polls are any indication, Americans would favor it by a margin of two to one.
Whether you want to improve health, extend life or just lower health care costs, cigarettes are the scourge you can’t ignore. Smoking kills some 443,000 Americans each year (including 49,000 nonsmokers exposed to secondhand smoke). It disables many more. And between lost productivity and increased medical expenditures, it costs the country $193 billion every year. Yet 20% of U.S. adults still smoke, and an estimated 1,000 kids start smoking each day, many of them snagged by the industry’s $8.5 billion-a-year marketing efforts.
TAX HIKES WORK TO BREAK THE HABIT
Smoke-free laws and hard-hitting ad campaigns can help counter the allure, but no anti-smoking strategy has worked as well as taxation. In more than 100 studies from around the world, researchers have found that price hikes reliably and consistently cut tobacco use, especially among young people. Whether the studies focus on “uptake,” quitting rates, relapse, or even consumption levels among continuing smokers, the effects of a price hike are predictable. As CDC Director Tom Frieden said during a news conference this week, “increasing the price of tobacco is the single most effective way to discourage kids from smoking.”
As a rule, every 10% hike in the cost of cigarettes cuts youth smoking by 6% to 7% (adult smoking by 3% to 5%). Apply those percentages to a country of 300 million, and the impact can be staggering.
In a 2012 report, the nonpartisan Congressional Budget Office predicted that a tax hike of even 50 cents a pack would reduce the number of adult smokers by 1.4 million over 10 years. At that rate, Obama’s 94-cent hike should yield 2.6 million fewer adult smokers over the same period. The Campaign for Tobacco-Free Kids estimates that the proposed tax would keep about 1.7 million U.S. kids from becoming addicted adult smokers, saving $42 billion in medical expenditures and preventing 626,000 early deaths in that population alone.
Taxing vices is nothing new; many states and cities have adopted their own tariffs, driving prices into the stratosphere in some regions. The overlay of federal, state and city taxes has pushed the price of cigarettes to $14 a pack in New York City and nearly that level in Chicago. And since smokers are generally poorer and less educated than nonsmokers, the effect is regressive.
“The idea of increasing taxes on low- to middle-income Americans at this time is ludicrous,” Reynolds American spokesman Bryan Hatchell said in a statement this week. “As middle-income Americans struggle to make ends meet in a very slow economic recovery period, this is not the time to hit them with higher taxes.”
By the same token, it’s not the best time to target them for addiction and early death. Since tobacco companies still enjoy that right, Americans don’t mind using taxes to counter their influence.
VOTERS FAVOR INCREASES
In a 2010 study funded by the Robert Wood Johnson Foundation and published by the Campaign for Tobacco-Free Kids, researchers concluded that higher tobacco taxes are a clear “political win” for policy makers. “Not only do 67% of American voters favor a $1 increase in their state’s cigarette tax,” the report’s authors said, but “increasing the tobacco tax is by far the most preferred measure for addressing state budget deficits when compared to increasing other taxes or cutting programs such as health care, education, and transportation.” Other polls confirm that finding, and it’s surprisingly bipartisan. In a statement on the Obama proposal, Tobacco-Free Kids President Matt Myers notes that “large majorities of Democrats, Republicans and Independents and voters from a broad range of demographic and ethnic groups all support tobacco tax increases—as do significant numbers of smokers.”
For all its advantages, the cig-tax solution does harbor ironies. It relies on the very activity it discourages to finance social progress.
To the extent that it succeeds in curbing smoking, it is bound to lose steam as a funding mechanism. As the Washington Post observes in a blog post, this contradiction could soon lead to funding shortfalls for the president’s early-childhood initiative. As that happens, the country will have to decide whether its children merit other sources of revenue. But diminishing returns are no vice in this instance. They’re the measure of success.