The World Health Organization has declared that “tobacco taxes are the most effective way to reduce tobacco use, especially among young people and the poor,” but Slate’s James Ledbetter points out that in the US, there’s a portion of the smoking population that keeps on paying them:
Over the last decade or so, several states and jurisdictions have experimented with massive cigarette tax increases, as much as 100 percent or more over the existing rate. California, for example, still has a relatively low state cigarette tax, but in January 1999, it ballooned from 37 cents a pack to 87 cents. In 2002, New York City raised the tax on a pack of cigarettes from 8 cents to $1.50, an astronomical hike of nearly 1,800 percent.
Yet according to anti-tobacco activists–who are backed up by economic studies–in every single instance, these huge tax hikes have led to states collecting more revenue, even as many smokers swear they won’t pay them. Cigarettes may not quite be what economists call “perfectly price inelastic,” but millions of American smokers are willing to pay much higher taxes than economic theory would suggest they should.
Ledbetter explains that it would be fairly easy for many smokers to evade high state taxes – for instance, by making periodic trips into neighboring states to stock up on cheaper tobacco products. Yet many smokers don’t take advantage of these money-saving opportunities. Ledbetter looks to research for an explanation:
Tobacco-use surveys tell us two interesting things: 1) A majority of smokers at any given moment are thinking about quitting, and 2) 62 percent of smokers buy only packs, not cartons. A huge number of smokers, then, are too timid about their habit to buy enough cigarettes at a time to realize any substantial savings by going outside their normal buying outlets.
If so many smokers are thinking about quitting but failing to do so even when tax hikes nudge them in that direction, that tells us we need to combine tobacco taxes with smoking-cessation assistance. (After declining over the course of decades, US smoking rates seem to be stuck at around 20%.) Ledbetter points out that states have a disincentive to help smokers quit, because fewer smokers would mean less tobacco-tax revenue. Of course, it’s in states’ long-term interest to reduce smoking rates and thus tobacco-related illnesses, which reduce residents’ quality of life and economic participation as well as affecting Medicaid spending. Unfortunately for public health, budgets get made for the short term — and, as I wrote in a previous post about stalled smoking-cessation efforts, future prevention payoffs don’t compete well against current spending needs.