Blowing Smoke on Taxes

At one time, the rich, hearty smoke of tobacco promised more than just fatal diseases like emphysema and lung cancer. It guaranteed sophistication, sex appeal and even longevity. Although cigarettes are not as appealing to the American public as they once were, cigarette taxes certainly are. All 50 states have passed taxes on cigarettes. Despite these taxes, 48 million Americans—many of them poor—still smoke today, and politicians are eager to help them light up.

Across the nation, both state and federal governments have looked to higher cigarette taxes to compensate for revenue shortfalls due to the latest economic downturn. Although citizens dislike higher taxes, they tend to support higher cigarette taxes because they hope that the higher cost of cigarettes will pressure people to stop smoking. Strangely, legislators seem to secretly hope that the taxes have the exact opposite effect on smoking habits. Owing to the government’s need for revenue, the politicians stand to gain if people continue smoking and pay the additional taxes.

Although some people may attempt to quit because of higher prices, the reality of their nicotine addiction means that most smokers will not even try to quit. Smokers pay the higher price for cigarettes and legislators know it. State and federal governments depend on this willingness to feed a destructive habit. Legislators need the tax revenue to fund government programs—programs that they would otherwise have to cut—or risk losing the support of their constituents. Politicians have become as dependent on cigarettes as the people who smoke them.

The real winners are non-smokers. They love cigarette taxes not only for their supposed public health benefits but also because, as members of a group that makes up more than 75 percent of the U.S. population, their pockets remain untouched. But non-smokers easily forget that the burden of cigarette taxes falls disproportionately on the poor. If other major factors are taken into account, the lower a person’s income, the more likely that person smokes. According to a study by the consulting firm KPMG Peat Marwick, smokers earning less than $30,000 will pay more than half of the price incresases created by the cigarette tax. Less than 1 percent will be paid by smokers with annual incomes over $100,000. For that reason, a tax on tobacco is probably the most regressive of all taxes—more so than taxes on beer or gasoline. This tax is an unfair transfer of wealth from poor smokers to more affluent non-smokers. If prices rise by $2 per pack, a two-pack-a-day smoker will be hit with $1,460 in added expense each year. That’s a huge financial drain on a low-income consumer who cannot kick the habit.

Anti-smoking lobbyists persist in their fight for higher cigarette taxes, claiming that it keeps cigarettes away from teenagers and children. This claim is difficult to justify. Researchers at Cornell University just reported that the price elasticity of demand for cigarettes—how sales volume changes in response to price changes—is roughly zero for teens. That means that, within reasonable limits, teens will smoke about the same number of cigarettes no matter the price. Government statistics even show an increase in underage smoking in seven of eight states that have recently raised their cigarette taxes. In the United Kingdom, where cigarettes are twice as expensive as they are here, the smoking rate for children is the same as in the United States.

However, state governments refuse to see that cigarette taxes have little effect on young adults and children. What’s worse, states ignore the fact that retailers sell cigarettes to children regularly, in violation of state laws. Government agencies should be enforcing these laws to prevent children from becoming future addicted smokers. Retailers should be harshly punished for selling to minors, demand proof of age and prohibit vending machine sales. But state governments are not making serious efforts to implement these changes because to do so would mean losing future tax revenue crucial to finance state programs. Even the nineteenth-century French ruler Napoleon III, who was urged to ban tobacco, once remarked, “This vice brings in 100 million francs in taxes every year. I will certainly forbid it at once—as soon as you can name a virtue that brings in as much revenue.”

Instead, state and federal governments persist in levying a regressive tax that hurts the poor and does little to discourage smoking.

Anat Maytal ’05, a Crimson editor, lives in Thayer Hall.