How state governments are addicted to tobacco revenue

Few things smell worse to me than the stank of a cigarette while trying to trying to load up on cholesterol via awesome blossom.  Perhaps one such thing is the beguiling tale of what perverse fate has befallen the gobs of cash money rewarded to state governments from Big Tobacco.

This seemingly righteous pursuit was fought by brave attorneys general of 46 various states to regain money we dished out to pay the costs of Medicaid patients who, due to tobacco use, found themselves in various states of wheeziness and/or infarction.  So naturally you’re asking “why then did these same states more recently try to help Big T in getting a recent settlement against it reduced?”

Background:  Smoking is estimated to kill 440,000 people per year in the U.S.  To put this into perspective that’s the equivalent of ; (for Indians)  110,000 auto-rickshaws full of people, (for white people) 440,000 full size suv’s, (for illegal immigrants)  44,000 windowless cargo vans, (for northern liberals) 5 New York giants’ stadiums worth of Celine Dion concerts.

So it was only natural that we cheered our fair heroes as they pursued the feral beast that was (is) big tobacco to compensate us for the damage they had done to our Medicaid purses, oops I mean patients. And they were successful. Our public defenders brought home the bacon in the form of 206 billion to be paid out annually from the year 2000 to 2025 to the states. “Don’t worry!” they told us. The money would be used to pay for Medicaid expenses and for tobacco cessation/education programs.  In addition, as part of the agreement, the tobacco industry said it would stop marketing to minors, without any specific stipulations on what the consequences would be if they continued this practice.

And thus began the greatest case of false advertising since Homer Simpson tried to sue the movie “The Never Ending Story.” Big T said that they never meant they would stop marketing to minors, but actually meant miners (or something like that). The States said they needed the money in other places and then started pouring the money into their own general coughers (ahem, sorry couldn’t help myself), squeezing every last drop from the cigarette tax to fund other areas. In 2010 alone 25.1 billion was collected from tobacco taxes.  Of that a measly 2.3 percent has gone towards helping Dopey, Coughey and Wheezy kick the habit.

And that lack of funding for tobacco cessation has far reaching, and in many cases lethal consequences. As we have seen from a study in NEJM looking at spending on smoking cessation, money spent on tobacco cessation directly affects smoking rates. Thus investment in smoking cessation programs directly reduces the amount of money required to care for those whose health declines as a result of smoking.

However, spending on smoking cessation has another unintended and more immediate financial consequence: it reduces tobacco tax revenue. When spending on tobacco cessation decreased in California, tobacco tax revenues sky-rocketed by a massive 1.4 billion over the period of study. Similarly, the resulting increase in the number of deaths, due to cuts in tobacco cessation funding, could be quantified to the tune of an extra 8300 people dying in California alone.

Meanwhile state governments continue to reap the benefit of tobacco sales taxes in addition to the tobacco settlement funds. And somehow in this weird circle-jerk of lunacy, the state governments had somehow become the enablers, themselves addicted to the tobacco revenue that they had doled out as punishment. For 25 easy payments of several billion dollars, the state governments were bought and paid for. They were no longer in the business of protecting their citizens, but were becoming more interested with keeping Big T in business to support their own source of funding.

Witness now the next phase in tobacco enabling: securitization.

The States, faced with shrinking revenues during the Great Recession are looking to borrow against future tobacco settlement earnings. To do this, they have begun peddling bonds against future tobacco earnings to fund current budget shortfalls.  Thus we are stuck with the incredible situation where state governments are in the business of keeping tobacco in business, and opposing any large settlement against the tobacco industry that might threaten earnings.

How does one escape this pickle? Higher taxes would be the way. For while taxing the hell out of one segment of the population may cause them to secede from the union (United State of Smokers?), it would also vastly reduce the number of smokers.  The yearly tobacco tax revenues would dry up, along with the persevere incentives it has created. Big T will do fine.  Powered by lungs of overseas youth, it will continue to be our perpetual payout slot machine until 2025. But hey, we can hardly solve the rest of the world’s problems, now can we?

Deep Ramachandran is a pulmonary and critical care physician who blogs at CaduceusBlog.

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  • Norman

    Why are you surprised with the states actions?  They are already running the numbers racket via state lotteries, some states have state owned liquor stores, it is only a matter of time before they start running whore houses.  States governments are no different than the federal government, they always want more money.  Traffic tickets are another revenue source, it is not about public safety, just money.

  • Anonymous

    I’m sorry, but I just don’t see why it’s the responsibility of government to make people stop smoking. Why don’t they also pay to “rescue” people from other bad decisions – obesity, too many kids, lack of motivation… Oh wait, they already do. Where is the personal accountability and responsibility in this equation? While corporate America IS greedy as hell, they are not forcing the cigarette into your mouth. Do we expect nothing of our citizens anymore?

    • Anonymous

      It is not the responsibility of government to make people stop smoking. They do have a responsibility to protect the public from the constant pushing of a dangerous substance in what has been a massive ongoing harm to the general public. Tobacco is a plant. It is harmless. Tobacco corporations, to the contrary, are drug pushers. They spend tons of money on advertising and keeping their poisonous product available 24 hours a day, every day of the year, on every street corner in the country. They purposely advertise to children and impressionable young adults with a known addictive substance in ready to ingest form. Is that responsible citizenship?  Perhaps for a sociopath.

      • Ralph

        Amen.  Excellent choice of words.
        Thank you.

      • Anonymous

        Sorry, but I disagree with you. I remember when tobacco advertising was everywhere!!! TV, Radio, Billboards and etc., all of that has been banned.

        The US Government does NOT have a responsibility to protect me, from myself. I smoke, but I do it in my own home. I respect others and don’t even want to smoke in restaurants or public buildings. But, smoking outside in the wide, open air, doesn’t harm anyone and is NOT second-hand smoke. I am not talking about smoking in front of an entrance of a building, either.

        You claim that Tobacco companies are advertising to children and impressionable young adults, where and how? Plus, you want the US Government to be responsible and protect the public. Are you even aware that the US Government subsidizes the Tobacco farmers???!!! How responsible is that???!!!

        In all honesty, we have a much bigger problem on the streets … called Meth, Crack, Heroin, Ecstasy and the like. Plus, we have a large portion of our population, addicted to prescribed drugs!!! Bottom line, many physicians are the cause of that fact.

        • Anonymous

          No apology necessary. 
          Correct, the government should not waste much time saving people from themselves. 
          The latest second hand advertising (by no means the only) was a recent presidential candidate ad where smoke was blown right at the camera. This received over a million hits on YouTube and was shown all over the major news networks. Tobacco has been shoved into mainstream society as “culture” or a meme with blatant product placement. This is advertising. It is intended for young adults and children, as no reasonable adult would care for a moment if someone was smoking in a campaign ad or not. There are several other viral videos that promote tobacco use, like the one of the 2 year old asian child smoking. This is not aimed at older audiences. Consider that they may not be any more powerful advertising for children than a pack sticking out of  Moms purse or Dads front shirt pocket. Advertising is still everywhere. 
          Correct, tobacco subsidies should end today. This article clearly bashes the inappropriate relationship between the government and the tobacco industry. I am no advocate for the way government behaves. 
          And yes, there are always greater wrongs out there. No reason to clearly address this one. Tobacco is the real gateway drug. Government subsidized, as you clearly point out. Physicians who prescribe pain medications are trying to ease suffering. What are tobacco companies trying to do?

    • anonymous

      When you light up it also affects non-smokers.  I don’t want my child breathing the crap you exhale.

  • Terence Ivfmd Lee

    To the smoker, there are personal positives to the decision to smoke (transient physical pleasure) as well as personal negatives (cost, short-term health consequences, future health consequences). It is a decision that every free human being should be entitled to make for himself/herself. Rather than leave this as a free personal decision, politicians forcefully intrude, always by taking money into their coffers away from the people. They take money from all working non-smokers via taxation, keep a chunk for their own agenda (as dictated by the lobbyists who are paid by the big corporations) and then use a portion to subsidize medical care for the smoker. I am open to hearing anyone who disputes this. Politicians also take money from the smoker (again via even more taxes), and again mostly for their own lobbyists’ agenda, and then supposedly use a portion to buy advertising to promote anti-smoking ads. Does this make sense? Is it fair?

    If a politician or any human has a personal agenda to prosetylize to smokers and preach to them about the errors of their ways, whether it be for their own good or not, then that’s great! Go for it. But use your own sweat. Do not confiscate money from OTHER people forcibly in order to advance your own agenda.

    Instead of taxing non-smokers to pay for the health care of smokers, why not leave that to charity and let all hard-working people spend their own money on themeselves and their families? Instead of taxing smokers, why not just leave them alone to face the consequences of their actions or better yet, drastically LOWER the taxes of all nonsmokers if they truly want to give an incentive. It really looks like every action of the state is geared towards more money going from the pockets of the working people into the control of the politicians and the lobbyists who shape them. Is this good for the people overall? I have my views on this and you can likely guess the answer.

    By the way, I greatly dislike smoke of any sort, but this is an issue of human rights and freedom.

    • anonymous

      You should take some time to think about second hand smoke and its impact on non-smokers.   And the rights of non-smokers to breathe clean air.   

      • Terence Ivfmd Lee

        Non smokers should absolutely have the right to NOT be subjected to second hand smoke. I agree.

  • David Lange

    Some of our pulmonary centers seem to have the same addiction. Any mention of tobacco use and end of diagnosis, regardless of patient complaints of traffic pollution from engine exhaust and roadway dust. And even though the medical center building itself, and the landscape around it is thick with black traffic soot. But inside is array of shiny instruments and equipment that likely was funded by tobacco settlement awards. My own pulmonary diseases are always made worse when traffic is in session.

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