Pay-As-You-Smoke

Do cigarette taxes cover related social costs?

Nick Gillespie from the June 1995 issue

Tobacco companies manufacture their products and make large profits, then the taxpayers pay the costs for illness associated with those products," says Sen. Frank Lautenberg (D-N.J.). That's why he, fellow Garden State Sen. Bill Bradley, and Sen. Tom Harkin (D-Iowa), are pushing legislation quintupling the federal tax on cigarettes from 24 cents to $1.24 a pack and eliminating tax deductions for tobacco advertising.

The latest research on the subject, however, contradicts Lautenberg's contention. In a recent National Bureau of Economic Research working paper titled "Cigarette Taxation and the Social Consequences of Smoking," Duke University economist W. Kip Viscusi concludes that present state and federal cigarette taxes more than pay for social costs associated with smoking.

In fact, in a grisly twist, Viscusi finds that since smokers tend to die younger--and hence, draw less in Social Security, Medicare, and pension benefits--they actually save society money.

Viscusi's research confirms the findings of previous studies, but his is the first both to adjust for decreasing levels of tar in cigarettes and to include estimated costs for environmental tobacco smoke. (He notes in passing, "Calculating [ETS] estimates in no way implies acceptance of their validity.")

Current federal and state taxes on cigarettes average 53 cents a pack. In Viscusi's worst-case scenario, which takes "EPA estimates of...ETS risks at face value," the external costs per pack are 43 cents per pack. "As a consequence," writes Viscusi, "cigarette taxes already exceed the level of the estimated externalities."