Appendix C from "Dissecting Antismokers' Brains"

Taxes, Social Cost, And the MSA



Gesundheit ist Pflicht! {Health is Duty!} - - Nazi Party slogan from the 1930s
The pure hard numbers of dollars and cents should be about as far away from the value judgments, psychological theories, and slipperiness of mutating word definitions as one could hope to travel. Even here though the arguments in the conflict between smokers and Antismokers are more open to varying interpre-tations than would be ideal.

In the 1970s and 1980s Antismoking groups claimed that cigarette taxes should be raised because nonsmokers were being unfairly forced to pay extra taxes to care for old and sickly smokers. The argument of fairness is a powerful one and many smokers resigned themselves to a future of doubled or even tripled taxes. The spectre of cigarette taxes rising from the 20 cents or so that was common then to levels of 40, 50 or even 75 cents was daunting, but seemed in fairness to be unavoidable.

As the 1980s drew to a close however, new information began to emerge. An article in The Journal of the American Medical Association looked at the social costs and taxes related to drinking and smoking and arrived at an unexpected conclusion. The analysis showed that to reflect true fairness smokers should actually get paid between 22 cents and $1.28 by nonsmokers for every pack smoked in order to equalize the societal costs and savings from their habit (Manning et al. “The taxes of sin; do smokers and drinkers pay their way?” JAMA: 261:1604 1989).

The factor that had previously been ignored by Crusaders in their push to raise taxes that would pay their own salaries was the fact that, while statistics pointed toward smokers getting cancer and heart disease at younger ages and then requiring expensive care, those same statistics stated that smokers were dying earlier and thus were not running up long-term nursing home and geriatric care bills, or even collecting their fair share of pension and social security payments!

Manning’s paper is not alone in its conclusions. The U.S. Office of Technology Assessment noted in 1993:

Reduction or elimination of smoking would improve health and extend longevity, but may not lead to savings in health care costs. In fact, significant reductions in smoking prevalence and the attendant increase in life expectancy could lead to future increases in total medical spending, in Medicare program outlays, and in the budgets of Social Security and other government programs.
And again in 1997 the economist W. Kip Viscusi found that “on balance there is a net cost savings to society even excluding consideration of the current cigarette taxes paid by smokers.” When those taxes were included, at the much lower tax rates of the time, Viscusi’s figures concluded that smokers were paying $0.85 cents more per pack than their ultimate social and medical costs. Based on these calculations, he noted, one could argue that "cigarette smoking should be subsidized rather than taxed" (W. Kip Viscusi. “From Cash Crop To Cash Cow.” Regulation Vol. 20, No.3 1997).

These conclusions were similar to those reached in 1995 by a Congressional Research Service inquiry into the issue, and most significantly were strongly endorsed in 1997 in an editorially headlined study in the prestigious New England Journal of Medicine that concluded health care expenditures would actually rise if everyone quit smoking:

Health care costs for smokers at a given age are as much as 40 percent higher than those for nonsmokers, but in a population in which no one smoked the costs would be 7 percent higher among men and 4 percent higher among women than the costs in the current mixed population of smokers and nonsmokers. If all smokers quit, health care costs would be lower at first, but after 15 years they would become higher than at present. In the long term, complete smoking cessation would produce a net increase in health care costs, --The Health Care Costs of Smoking, Barendregt JJ et al, N Engl J Med, 337(15):1052-7 10/09/97 

The only well-designed study prior to 2002 that ever attempted to dispute these conclusions was one conducted by Dutch researchers and reported in the Journal of Epidemiology and Community Health. The way they arrived at a contrary finding was by assuming that smokers, instead of dying three to eight years earlier than nonsmokers as is usually claimed by Crusading organizations, actually live to virtually the same age as their nonsmoking counterparts (W. Nusselder. JECH 07/ 08/00 - as reported by Andre Picard, Public Health Reporter).

Dr. Nusselder claimed that while nonsmokers would live to an average of about 81.6 years, smokers would live to be 80.8 years themselves! That’s a difference of less than ten months… far less than any figures used anywhere else by Antismoking organizations or researchers when speaking of the effects of smoking. This study stood alone in its conclusions and seems to have been tailor-made to use before public bodies voting on tax increases. It certainly does not serve in any way to negate the other studies cited above, but for completeness it should be noted.

This brings us up to the latest study to hit the news: In May of 2002, just after New York City proposed a 1700% city tax increase that would raise the price of a pack of cigarettes to over $7, the Centers for Disease Control, with great fanfare, released a study claiming that smokers cost society $150 billion a year… or, not surprisingly, just about $7 a pack ( tobacco).

They arrived at that figure by using several tricks. About half the “cost” is from what they calculate as lost production for the state: something that used to be calculated only by communist and fascist governments. In order to arrive at $75 billion as a figure for that though, they had to make an assumption in the opposite direction to that made by Nusselder in the preceding study cited: they assumed that smokers die an incredible fourteen years earlier than nonsmokers!! (And of course the main or even the only cause of all these premature deaths is assumed to be purely the habit of smoking.) The other $75 billion is made up largely of fantastical projections of health care costs while simultaneously ignoring any decrease in costs due to those projected early deaths. As a coup-de-grace, the $50 - $75 billion that smokers ultimately pay in cigarette taxes and fees is completely ignored.

It would seem obvious that the entire argument of simple fairness would dictate not just a reduction of the onerous tax burden now being borne nationally by smokers, but its total elimination. Clearly such a conclusion obviously does not sit well with the Antismoking organizers whose paychecks are flowing from those taxes. But how could they argue against the cold actuarial reality of economic fairness? Always resourceful, never hamstrung by facts, the Crusaders have found a way – actually, several different ways.

The first, and boldest, was simply to ignore reality and continue to claim that smokers were still costing society money. When the facts presented above would be raised against them, they simply claimed that such reasoning was based upon “immoral economics,” since it included the savings to health and social care systems that accrued when smokers died prematurely. “Immorality” and “Big Tobacco” go hand-in-hand in the public eye so this approach to what had started out as a purely economic question has been widely accepted and touted by the media.

Even the courts, normally expected to confine themselves to facts and law, have been drawn to the moral argument. One of the very first cases that Big Tobacco lost against the states was heard before Judge Fitzpatrick in Minnesota. According to an article in the Minneapolis - St. Paul Star Tribune on Feb. 24th 1998:

Ramsey County District Judge Kenneth Fitzpatrick reiterated Monday he will not let the defense claim, or hint, that the plaintiffs benefit financially from the fact that smokers tend to die prematurely.
Judge Fitzpatrick also refused to allow the tobacco companies to bring up the fact that smokers were already paying into the state’s coffers through their taxes. In effect, the only thing he allowed to be brought before the jury was the calculation of the increased medical costs of sick smokers, without any consideration of the extra taxes they paid or the money saved by the state in geriatric and nursing home care. Legal economic considerations in court had been replaced by a judge’s sense of morality and his prejudice against Big Tobacco.

Faced with fighting a case based upon a “Let’s Pretend” Alice-in-Wonderland type world such as this, the tobacco companies realized they had no chance of winning. They chose instead to let smokers pick up the tab for them and agreed to pay almost seven billion dollars to Minnesota while also renouncing all rights to privacy and attorney-client privilege with regard to their corporate documents and memos.

Eventually Big Tobacco cut a deal with the Attorney Generals from all the states that it had not already settled with in courts and agreed to pay a fee, passed directly on to smokers, for every pack of cigarettes sold in the United States. This fee, currently equal in practical terms to roughly 60 cents per pack, acts as a direct federal tax upon smokers without ever having had to go through the legislative process of a tax increase. Indeed, virtually every newspaper article and network news mention of the money paid in the Master Settlement Agreement speaks of it as money coming “from the tobacco industry.” It’s never noted that the industry itself is in actually paying nothing: every penny comes directly from the pockets of smokers without their input, choice or legislative consent.

Amazingly, despite the seemingly clear figures indicating otherwise, the tobacco industry gave in to demands that it should be held responsible for government health care costs without recognition of how those costs are balanced and more than balanced by pre-existing taxes and long-term savings. Why did they do this? Simply because, as noted above, it cost them nothing: they were allowed, even in a sense required, to pass all costs directly on to the consumers of their products.

In return, they were guaranteed immunity from many future lawsuits and were also afforded guarantees that new and smaller tobacco companies would not be allowed to undercut their prices simply by being honest in their business practices. Finally, as a little noted side bonus, the massive overhead of the taxes passed on to smokers have allowed the tobacco companies to hike their profit margins to levels never dreamed of before the settlement: who will notice or care much about an extra 10 or 15 cents added on to a product that already carries a $5 price tag?

The second weapon deployed by the Antismoking Crusade in pushing for higher taxes has been to make use of the “Save the Children” argument examined earlier. Antismokers have claimed that every ten percent rise in cigarette taxes would result in a seven percent decline in teen smoking. This argument was heavily used in the 1989 California referendum that brought a 50 cents per pack increase to smokers and a 100 million dollar windfall to Californian Antismoking Lobbyists. It was also being used in 2002 as state-by-state polls paid for by Crusading groups purported to show widespread support for raising cigarette taxes.

The polls were cleverly slanted by starting out with questions that have obviously emotive answers (“Are you concerned about smoking by young people?”), and then moving on to budget choices dealing with such things as cutting valued programs for children and the elderly, and finally including the specific image of children in the final question: “Do you favor or oppose a one-dollar per pack increase in the tobacco tax as part of an effort to reduce tobacco use, particularly among kids…?” In Pennsylvania 75% of the voters favored the increase mentioned in that final question, in a classic “three wolves and a sheep voting on the dinner menu” split (

One has to wonder if social justice might have made a better showing if the poll was not so cleverly designed to play the “protect the kids” card. What if the wording had more honestly been “Do you favor or oppose a one-dollar per pack increase in the tobacco tax as part of an effort to reduce tobacco use particularly among lower income adults…?” A poll worded in that way might well have yielded a result in which 75% of the voters voted against the tax increase rather than in favor of it despite the wolves and sheep motivation.

In any event, despite the enormous tax rises of the last 15 years we've seen youth smoking rates increase by as much as 50% although there's been some downturn in the last three years or so among teen boys. If the statistics of the Antismokers were true teen smoking would be virtually non-existent at this point. Of course they're not true and teen smoking is still higher than it was back in the 1970s and 1980s when taxes were enormously lower, Antismoking ads on TV were almost non-existent, schools had smoking areas for student breaks, and the Antismoking budget was more like $9 million a year rather than $900 million.

This general experience of rising youth smoking rates was duplicated in state after state throughout most of the 1990s, despite the fact that the massive tax increases were also accompanied by a truly fantastic increase in government-sponsored Antismoking media propaganda, widespread smoking bans, and hitherto unparalleled enforcement of underage sale penalties.

The extra billions that smokers have been forced to pay to Antismoking efforts to vilify and ridicule themselves on billboards and in TV ads has generally done little other than enrich the Antismokers and impoverish the smokers. To add insult to injury, Antismoking organizations are now using that same money to crusade for even higher taxes in order to save even more of the children. As for the adult smokers who buy 95% or more of the cigarettes sold, they’re expected to simply grin and bear it… or even welcome the higher taxes as a blessing from Antismokers who are helping them give up their nasty habit!

The third argument for further increasing the tax burden on smokers is not widely publicized outside of circles where a sympathetic ear is expected. That argument is simply that massive increases in the tax rates will force poorer smokers to give up the habit or sacrifice basic life necessities in order to pay for it. Once again the technique of doublethink is employed by Antismokers as they argue that an extra dollar or two a pack will make smokers quit while at the same time they continue to argue that smoking is an addiction worse than a two hundred dollar a day heroin habit. If their perception of the addictiveness of smoking were even slightly true, all that the extra dollar a pack would accomplish would be to make poor people who smoke even poorer while affecting wealthier people not at all and leaving the smoking rate absolutely untouched.

There is one further argument that has become increasingly common since the late 1990s. This argument is based upon the obvious fact that when you have 50 different states with many different tax rates, about half those states will be below the average and about half will be above. This basic statistical reality has opened the doors for Antismoking organizations to pummel legislatures with demands that state taxes be raised to at least that “average” amount, while ignoring the fact that as soon as they are, the “average” will have then increased to a new and higher level.

On the high end of the scale, Antismokers will point to states like Alaska, California, and New York, and point out how well they are doing with all the money they are raising from their incredible tax rates, while ignoring the fact that in most cases those states with the highest tax rates are also losing an incredible amount of money to black marketeering and the crime that cigarette smuggling generates. At well over $5 an ounce, cigarettes in many states are now more valuable by weight than pure silver ingots! This is clearly reflected in the increased crime spiraling out of control as convenience stores are robbed, not of money, but of cigarettes. It is reflected as well in the social fracture that accompanies such crime and its acceptance by otherwise law-abiding citizens.

Greedy tax grabs in the name of public health have resulted in similar disparities across borders overseas. Cigarette smuggling, and the human and economic costs involved in its control have now become a significant factor on the international crime scene. Individual “busts” have now reached the level of almost twenty million dollars apiece (“Irish Customs Makes Largest Cigarette Seizure” Reuters 12/11/01), and in China cigarette smugglers have even been executed (“China Executes Seven…” Reuters 02/23/01). Meanwhile, as national authorities were focusing on the multiple “Beltway Sniper” shooting investigation in October 2002, the FBI was being chastised for not devoting enough of its energy to stopping smokers from buying tax-free cigarettes on the Internet (Mike Godfrey. 10/14/02).

Overall, the push to increase cigarette taxes comes down to two basic motivations: Greed and Control. The greed of governments for increasing income without the negative repercussions of generalized tax increases, and the increased control over the poor by making smoking too expensive for them to regularly indulge in, have combined to create a tax monster that is out of control and growing stronger every day. Current efforts by international Crusaders are aimed at getting worldwide laws setting extortionate tax rates levels on cigarettes in every country that depends in any way on United Nations aid or benefits from the World Health Organization’s other activities. Anyone resisting these efforts is instantly branded as a tool of Big Tobacco.

In August of 2000 a 500 page WHO report argued for a worldwide tax increase on tobacco products, using basically the same argument that American Crusaders used: tying the increase to a theoretical reduction in smoking rates “particularly among children.”

One item of note with regard to this report: in terms reminiscent of a slur that’s been made against American tobacco companies (“We target the black, the poor, the young, and the stupid” – often cited by Crusading groups as being a quote from a tobacco executive) the UN report noted, in more politically correct language, that these Third World tax increases were important because “youth, poor people, and the less well-educated (Third World people) are more likely to respond to an increase in price.” Unlike the apocryphal tobacco executive quote, the UN focus is well documented (N. Koppel. Associated Press 08/08/00).

A rose is a rose is a rose.

Copyright 2004, Michael J. McFadden


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