Do increased taxes imposed on cigarettes really work?

I was asked today to share my thoughts on the question of

Do taxes imposed on cigarettes to discourage public use really work?

She wanted to know particularly two things:

1. Improved social well being
2. Create distortion which causes a dead weight loss

I thought i'd post my response here for everyone. What do you think?

-----My Answer-----

the new fad for states to shore up their budget deficits by increasing tobacco taxes is gaining in popularity, however, the benefits of such programs are hotly debated.

Let's look at your two questions:

1- Improve Social Well Being

There are many who favor using oppressive taxes to modify the behavior of citizens, and smokers are an easy and popular target. Groups such as the Campaign for Tobacco Free Kids are calling for a $1 increase across the board and call it a WIN WIN WIN for states. They reason:

A budget win

In this they are right, raising tobacco taxes $1 a pack can raise millions of dollars for state coffers. For example: Such an increase could result in an estimated $480.1 million in new revenue for a state like Florida.

Faced with budget crunches, many states are eyeing this as an easy way to quickly increase revenue.

A health win

Anti smoking groups often argue that raising taxes on cigarettes will result in fewer smokers, particularly youth, who they reason have less cash than adults. They publish projected savings and statistics showing millions in new revenue and thousands of less smokers due to increased taxes.

However, there really isn't any firm data to confirm this or to show their projections turn into reality. To date I've seen no authoritative study that has been done to prove such an assertion and many point out that teens these days have far more expendable cash than adults do. So, do increased taxes really result in a decrease in smoking, particularly amongst youth? The fact is no one is quite sure yet.

But it does make sense in the minds of most people. More expensive == less use.

Until you factor in the cost of other addictive drugs like crack and heroin and even cocaine and pot, whose prices have been going up, yet according to recent studies and the DEA, use really has not gone down proportionately. Addictions can be strong and addicts will usually offset higher costs by foregoing other things, which may include healthy food and health care. So in the long run, the benefits of higher taxes may or may not actually result in increased health benefits for users and decreased health care costs for states.

A political win

This is the biggest factor for politicians. Increasing taxes is never popular, but if you can segment society down into small groups, and target unpopular groups to tax while leaving everyone else alone, politicians can raise taxes and find popular support in doing so.

For example:

Tobacco Free Kids reports that anywhere from 60 - 75% of voters support an increase on cigarette taxes. Yet, 72% oppose a raise in sales tax, 76% oppose a raise in income tax and a whopping 80% oppose a raise in gasoline taxes. Meanwhile, the same people oppose cutting funding for important services, like education, which 81% oppose, law enforcement is opposed by 78% of voters and road maintenance and construction cuts are opposed by over 70% of voters.

So, while everyone uses these services, no one is willing to increase taxes to pay for them. Having smokers carry the burden while not seeing an increase on things that more voters use, like alcohol or gasoline, is indeed a win win for politicians.

2- Create distortion which cause a dead weight loss

I'm not really sure what you mean by this, but if you mean that smokers do not carry their own weight in the tax burden, I'd argue they actually carry an increased burden over the average voter. And sadly, often times smokers are in lower income brackets and unable to afford such high tax increases.

Let's use NY as a great example. For a citizen living in NY City the tax on a gallon of alcohol, which let's assume is the weekly intake for a moderate to heavy drinker, they pay about $6.44 in excise taxes. Now this seems high for a gallon of booze right?

Now let's look at what a New York City smoker pays: $4.25 per pack of cigarettes. That's $42.50 per carton.

So, in the course of a week a drinker pays $6.44 in taxes, the smoker pays $42.50.

Who is the dead weight here?

Most voters oppose an increase on liquor taxes, but as I said earlier up to 75% are willing to force smokers to shoulder the burden for paying for such things as education, law enforcement and roads, even though more drinkers use these things than smokers.

Many smokers are indeed quitting, but with a dismal 5% success rate of most stop smoking programs, many end up returning to smoking, and to suffering the huge tax burden that goes with it.

Some are turning to electronic cigarettes, which so far are not being taxed and in some states have a per pack cost equivalent that is equal to or even less than the cost of state taxes on traditional cigarettes.

But no one is sure how long it will be before the anti smoking campaigns and the politicians turn their greedy tax sights to this new alternative as well.

However, in the end, the real question for Americans at least boils down to two things:

Is it fair to force a minority of the populace to shoulder a heavier tax burden than others?

Is it the governments job to force people into modifying bad habits through the use of taxes, particularly when one group (smokers) is targeted more often than equally dangerous and costly addictions (alcohol), but one with a higher user (ie voter) base?

It is a question we shall have to struggle with and only time will tell how far the smoker money train will last before the rest of society must finally step up and pay their fair share as well.

Who will be next? Drinkers? Fast Food lovers? Sugar eaters? All have recently been suggested as an equally lucrative source of state tax revenue.