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Cigarette taxes work and why they are still too low

| Conditions | May 12, 2011

Not to be negative about public health educational campaigns, which I believe are important, but the two major factors that have led to the decline in US smokers over the past decade are most attributable two two things: smoking bans and taxes on cigarettes.

When it becomes difficult to smoke in public places and expensive do to so anywhere, people are more motivated to quit.

An article in the New York Times caught my attention: In Japan, Pfizer Is Short of Drug to Help Smokers. The focus of the article regards how Pfizer was a little unprepared for the excessive demand of the smoking cessation drug Chantix (called Champix in Japan and elsewhere) when the Japanese government imposed a cigarette tax.

Being in the business section, the focus is on sales and Pfizer’s handling of the situation. However, I am much more interested in the impact of the Japanese cigarette tax on behavior. Japan has a much high smoking rate than in the US. In 2009, about 40% of Japanese men smoked, compared to about 24% of US males. The Japanese tax started in October of this year. Prior to this, the rate of smokers in Japan decreased by about 2%. The tax increased the cost of a pack of cigarettes from about $3.60 US dollars to $4.80. Prior to the tax, ad campaigns sponsored by Pfizer, led to sales of Chantix to 70,000 patients a month in August, which more than doubled to 170,000 patients in September (just before the tax) and continued to grow in October (the NYT article talks about how Pfizer had to suspend prescriptions to new patients because they couldn’t make enough Chantix fast enough to keep pace with demand).

The bottom line is that cigarette taxes have been effective in the US, and seem to quite effective in Japan based on excess demand for Chantix and a significant drop in Japanese smokers prior to the tax. With our economy still not in the best shape, health care costs escalating, and respiratory illness now rising to the 3rd leading cause of death in the US, we should consider increasing cigarette taxes even more.

Matthew Mintz is an internal medicine physician and blogs at Dr. Mintz’ Blog.

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  • http://fertilityfile.com IVF-MD

    There are always unseen unintended consequences of any action that is done by force rather than by persuasion. First, let me say that I would be thrilled if nobody in the world wanted to smoke. I am totally against the idea of smoking cigarettes. Second, I strongly and consistently believe that people own their own bodies and have the right to take risks that they choose if it gives them pleasure.

    So with regards to cigarette taxes, there will come a point that if the taxes get high enough, a black market will be created which can lead to the type of crime problems that the War on Drugs has caused. You can take it to an extreme as a thought experiment of what would happen if you made tobacco completely illegal, like cannabis and what that domino effect of events would do to peoples lives. Just some food for thought.

  • westeasterly

    I have to agree with the first commenter. I would be happy if everyone stopped smoking, lost weight, supported the ethical treatment of livestock, etc., etc., etc. Unfortunately, taxes are nothing but punishment- punishment levied upon people for choosing to be free and live the way they choose. Punishment that unfairly harms poor people more than it does the rich.

    It upsets me reading this attitude that the government has the right to steal the hard-earned money of its citizens. And for what? Because you don’t agree with other people’s personal decisions? Because your ideal of the perfect society doesn’t include allowing others to be free? When you say that cigarette taxes “work,” what you mean is that they work to force people to live their lives as you see fit. What you decide is in their best interest. I’m sorry, but that does not “work” for me. And I’m not even a smoker!

  • Frank in L.A.

    Like IVF-MD and westeasterly, I also am against smoking and wish no one would do it.

    But consider IVF-MD.s statement (“So with regards to cigarette taxes, there will come a point that if the taxes get high enough, a black market will be created which can lead to the type of crime problems that the War on Drugs has caused.”). The problem with IVF-MD’s statement is not that “there will come a point” when a black market is created; the black market is already here. Cigarette smuggling within the US and to and from the US is a major criminal enterprise now, and it financially supports much anti-social activity, including terrorism.

    Here is one of many recent links concerning this matter: http://www.usatoday.com/news/nation/2011-05-02-atf-cigarette-smuggling.htm

    Nearly all of us want less smoking, but we don’t want the crime that goes with the present situation.

    Matthew Mintz, MD would do well to consider those unintended consequences.

  • Norm

    I read a Canadian study published a couple of years ago that stated, male homosexual conduct was twice as risky as smoking, and that it will shorten the gay mans life by 10-15 years. A case of AIDS cost society about $700,000 to treat.
    Despite propaganda to the contrary AIDS, Syphilis, rectal cancer and other pathologies are still primarily confined to homosexual and IV drug abusers. So how about a gay tax? Just look at the cost savings to society.

    First, let me be clear (I got that from Obama) I don’t care what two people do to each other as long as it is consensual. The problem comes from the government controlling our lives. First they say they want to help us, and provide for our medical, housing, and food needs then they want to control our lives because they are providing this care.
    Many on the left constantly complain about the treatment of animals in zoos. Why? the animals have free housing, medical care and food, you would think they would be happy. We have whole segments of society that are confined to a zoo, only we call it public housing. I would rather be dead than live in a Zoo.
    It sickens me when I see moral degenerates, both Republicans and Democrats tell me how to live my life and yet they live the most vile, and corrupt lives

  • ninguem

    IVF-MD my only quibble is over “will happen”.

    Present tense, not future tense. It’s happening now.

    Buy the cigarettes, legally, in Virginia, brand-name smokes about five bucks a pack. Ship a semi-truck full of cigarettes from Virginia to New York, where the same pack might go for twelve bucks.

    Unload those cigarettes in New York, the profit for one shipment can be upwards of a million dollars.

    Do the math for the profit of a small U-haul full of smokes, or the trunk of your car.

    The mob is already into it. So are “suspected terrorist groups”. Relatively easy money compared to cocaine or heroin.

  • http://fertilityfile.com IVF-MD

    I have faith in my understanding of human behavior and as such realized the inevitability of people figuring out the profit in smuggling cigarettes across state lines.

    Thanks to Frank for ninguem for helping me out with the evidence that I didn’t have handy.

    It gets more complicated than that. There are people in power who stand to personally profit from this illegal activity, namely those in the police state. Yes, because while it’s certainly some work locking up cigarette smugglers, it’s nowhere as difficult as tracking down murderers and rapists. Chasing after drug and cigarette smugglers is less work and more profit. In addition, it’s unlikely that in the course of a rape investigation that one can come across hoards of cash that might conveniently not make it to the evidence locker. The money and stash that does make it can be auctioned off to support the department. All humans want to maximize their gains with the minimal effort, so it’s just human nature that makes the police favor these types of laws. There is also a lot of money to make in the prison-industrial complex locking up people for these victimless crimes at tax-victim expense. I don’t have any handy proof that this stuff goes on other than anecdotes from police friends and their ex’s. If anybody has more convincing proof (or rebuttal evidence), you are welcome to add it.

  • Norm

    Every winter I travel from Wisconsin to Florida, on my return trip I travel through Kentucky and Tennessee. Unfortunately those two states recently raised their cigarette taxes and Wisconsin has failed to keep up. The price difference is less than two dollars a pack.
    I think I am going to lobby my state representatives to raise Wisconsin cigarette tax so our cigarettes are more in line with N.Y. at $12.00/pk. (I’ll tell them it’s for the children) Then with a price disparity of over $6.00/pk. I will be able to fund my winter travels.

  • soloFP

    My area has an average of around $7 a pack for brand name cigarettes. I think it would have to go to $15 or more a pack to get people to quit. The higher price decreases the amount smoked slightly. That said, the governement enjoys an optional tax on a hazardous product. We might as well add a bullet tax, kitchen knife tax, saturated fat tax, donut tax, soda tax, and other vices. Increase the taxes on alcohol while you are at it. Most of the taxed items are optional, if the user decieds not to buy the product.

  • http://drsamgirgis.com Dr Sam Girgis

    It’s not only time to increase the taxes on cigarrettes, it’s time to OUTLAW cigarettes. How many more people are going to develop cancer or emphysema before we take definitive action on these known health destroying substance. Big Tobacco seems to have a monetary iron grip hold on the politicians with their lobbying and propaganda. Big Tobacco has made enough money at the expense of the health of the people. An tobacco executive recently commented that is “wasn’t that hard to quit smoking”. This view is laughable… it’s time for an outlaw now.

    Dr Sam Girgis
    http://drsamgirgis

    • ninguem

      Fine with me.

      I guarantee, if tobacco is banned, we will quickly see the concept of “medical tobacco”.

      We’re going through that with “medical marijuana”, and we went through it, in a big way, with “medicinal alcohol” ninety years ago.

      • ninguem

        Try this book for the background on “medicinal alcohol”.

        http://www.amazon.com/Last-Call-Rise-Fall-Prohibition/dp/0743277023/

        Read how compliant the AMA had been back in the day. The run-up to Prohibition, the AMA took the official position that alcohol had no medicinal value.

        When the idea came up to allow a “medical” exception to Prohibition, lo and behold, the AMA suddenly discovered all sorts of medical benefits to alcohol.

        Pharmacies were interesting places in Prohibition days. Someone reminded me that’s how Jay Gatsby made his money in “The Great Gatsby”, buying up failing pharmacies and offering lots of “medicinal alcohol”, and I suppose a few aspirins as well.

  • soloFP

    If they outlaw cigarettes, many state and Federal governments will lose a nice tax base. Also people will simply grow their own tobacco at home, as any outlaw of tobacco would have plenty of notice. Then a black market would exist for cigarettes.
    Drinking excessive kills people: why not outlaw alcohol?
    Driving fast kills people: why not outlaw fast cars or put a speed limiter on cars?
    Eating too much food can cause heart disease and obesity: why not outlaw large portions of food and fried foods?
    People make informed but dumb decisions in life, but unfortunately society ends up paying for their care through the risk sharing of Medicare or private insurance.

    • Bobbo

      Agreed. I fully support the right of people to decide what they put into their own body, harmful though it may be. I believe that some regulation is necessary (e.g. prevent false advertising/mandate safety testing so that people know the risks of that they are using). That being said, it is the unfortunate reality that under the current system, smokers (and obese/hypertensive/diabetic etc.). patients cost everyone more, and cigarette taxes really are just recouping a small part of that negative externality. In a system where smokers were charged sufficiently higher health premiums (including medicare payments), then I would agree that cigarette taxes are wrong.

  • http://fertilityfile.com IVF-MD

    I respect that there are people out there who are championing to reduce lung cancer and COPD in this world. That would be a good thing, I agree. Do you think education and persuasion are safer ways to try this or do you think that criminalization of cigarettes would better solve the problem and do so without a whole new Pandora’s box of WORSE side effects and consequences?

    Does that mean you advocate throwing cigarette smokers in jail? How much would that add to the costs of the prison system? Once cigarettes reach $80 a pack on the black market, do you think there would be more or fewer thefts and crimes committed for the purpose of funding ones illicit cigarette habit or would demand for tobacco simply disappear and the world be rid of any further tobacco-related illnesses?

    How many peaceful tobacco smokers taken out of the productive work force and incarcerated at the expense and financial support of taxation victims would be enough? Would the children of smokers gain a net benefit from having their parents taken away from them in exchange for the valuable lesson learned about the horrors of tobacco?

    What if people decide to grow their own tobacco in their basements? Would you recommend allocating funds and manpower away from the policing of murders and rapes and shift it towards catching and jailing the tobacco growers and/or those who smuggle cigarettes in from Canada and Mexico?

    What is next? Along these lines of reasoning, do more people die from cardiovascular events each year or from lung disease? If you believe it’s the former, would you advocate criminalizing persons with BMI over 35 who eat doughnuts or those who sit on a couch instead of exercising? If so, how would you police that? With mandatory glucose police-monitors on every person and a new Exercise Czar with Exercise Police to make sure everybody complies with the mandatory daily-calories-burnt edicts?

    Do you think there is a cognitive harm to ones intellectual health from watching certain mindless TV shows? Wouldn’t it make sense to ban those also?

    Once all these are implemented, wouldn’t it be wonderful if the only fraction of people in this country not in jail were healthy-eating, regularly-exercising, tax-paying workers? Imagine what a wonderful would this would be!

    • http://drsamgirgis.com Dr Sam Girgis

      Oh yes, I see your point. In that case, I think we should legalize marijuana and all other street drugs including heroin and cocaine. (Insert sarcasm here) And while we’re at it, let’s tax them as sources of federal and state revenue as well. The way I see it is this: a substance of abuse is a substance of abuse. Just because man says that it’s “legal” doesn’t mean that it’s okay.

      Dr Sam Girgis
      http://drsamgirgis.com

  • http://fertilityfile.com IVF-MD

    Yes, I can agree with you that cannabis, heroin and cocaine should be legal, as it has been for thousands of years (NO sarcasm) and I can also agree that just because the man says it’s “legal” doesn’t mean that it’s okay nor good.

    • ninguem

      “Beer is legal, you don’t give it to an alcoholic”.

      I say that every day to the addicted patients I encounter in my practice, asking for a medical marijuana card.

      Fine, legalize it and tax it. I do accept that we will create new problems, but we will eliminate what…..IMHO…..is a worse problem.

      Organized crime.

  • ninguem

    I wonder if anyone has run stats on how much tobacco is bootleg, smuggled, in a state like New York?

    In other words, the tax is raised, consumption……officially……goes down. But is that offset by an equal amount of smuggled tobacco, with the result that the actual tobacco consumption is the same?

    I don’t know. I wonder if that’s been researched?

    For tobacco, I think that might imply a low tax state like Virginia shows abnormally high tobacco sales, though much of that is going out of state and not consumed in Virginia.

  • Dorothy Green

    Wow! Get the government out of my life seems to be a recurring theme here. I agree with the author that the very government some of you blast has done a very positive thing with the tax and message on cigarettes. Maybe some of you haven’t studied the history – how it was when over 60% of adults including doctors smoked. And, the revenue doesn’t need to be put into a general fund. It could be dedicted to health care.

    As one of the little “we the people” I see a lot of faults with our gov’t but taxing cigarettes is not one of them. Nor would taxing sugar, fat and salt in processed food be one either as I know full well there are is no other option I prefer – tax more of my income or don’t have a health care system and let the chips fall where they may for everyone.

    Has the incidence of cigarette smoking increased recently? No. It is rather stable now and one of the lowest in the developed world now. Tax more. No – you are right that it can be taxed only so much before the black market prevails. Politicians are grasping at anything to get more money to pay the bills since the Big “we the people” – Big Finance- will not pay us back, release credit and is intent on giving out bonus’ and lying to Congress to save their hide from jail and fines – Read Rolling Stone this month.
    I too say legalize marijuana and tax it.

    It is stupid to outlaw tobacco just as it is stupid to outlaw marijuana and perhaps other drugs. It is also stupid and an insult to any taxpayers intelligence to go on subsidizing tobacco, corn, soy and other crops where the profits are made by Industrial food companies using them to produce unhealthy food – animals are not designed to eat grain and humans are not designed to eat HFCS, high amounts of sugar, unhealthy fats and more than 1500 mg of salt.

    So when you attack our government for “trying to control our lives”, why don’t you consider who is controlling our government. It’s not the majority – the little people.

  • http://notwithstandingblog.wordpress.com The Notwithstanding Blog

    Cigarette taxes are already far higher than the external costs of smoking; the cost to society is recouped many times over. (See the 1989 JAMA article entitled “Wages of Sin” for an illustration of why).

    Are smokers to be considered villains or victims? If the latter, why raise taxes on them further? If the former, why expend so much effort litigating against the tobacco companies instead of their also-culpable clients?

  • Oda

    In my economics class in college we were taught that tobacco is an inelastic good (http://www.investopedia.com/university/economics/economics4.asp) and so consumption doesn’t change much with the change in price. Has this changed?

    • http://fertilityfile.com IVF-MD

      Oda, Oda, Oda, just because you were taught in a class that tobacco is an inelastic good doesn’t mean that tobacco is an inelastic good.

      Kids are taught today that WWII was responsible for ending the Great Depression and that our world will heat up and self destruct unless we pay money into the Cap and Trade scheme.

      What children are deliberately NOT taught is logic and critical thinking.

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