Break Out the Cigarillos

Jacob Sullum | October 13, 2004

Good news: Congress has passed legislation that ends the 66-year-old tobacco price support system.

Bad news: The government will pay quota holders (not necessarily farmers) $10 per quota pound, a total of more than $10 billion over 10 years, for agreeing to compete in the free market.

Good news: The cost of the payments will be covered not by tax money but by an assessment on cigarette manufacturers.

Bad news: The tobacco companies may simply pass the cost on to consumers, as they did with their payments under the agreement that settled state lawsuits against the industry. If so, the assessment will be a tobacco tax hike in disguise.

Good news: Provisions giving the FDA jurisdiction over tobacco, which would have restricted competition and could have impeded the introduction and promotion of safer tobacco products, were dropped before the final bill was approved.

Comments

Charles Hueter|10.13.04 @ 10:17AM|#

Legislation like this conjures an image of a rancher trying to kill a snake by jumping on it and then shooting it through his feet.

|10.13.04 @ 10:20AM|#

The good news sure as hell seems to outweigh the bad...never thought I'd see anything remotely sensible happen with tobacco any time soon..

|10.13.04 @ 10:32AM|#

Bad news:

The frogurt contains potassium benzoate..

James Anderson Merritt|10.13.04 @ 10:54AM|#

Up, down, up, down: it's like a wild roller-coaster ride. My stomach is a bit unsettled. I need a smoke...

|10.13.04 @ 11:18AM|#

So the real struggle appears to be shifting to those localities and states which are banning smoking in bars, etc.

Highway|10.13.04 @ 11:34AM|#

It's all too confusing to me... let me see if this is right:

Price controls are ending (yay) that will lower th prices that were paid by the buyers of tobacco (say cigarette manufacturers), but in order to enact the end of the price control, they're going to tax (boo) the manufacturers to give money to the growers, and the manufacturers will just roll this cost into the final prices for their products.

Meanwhile, back at the Halls of Congress...

The anti-smoking lobby is blaming GWB for this deal saying that it will increase kids smoking (mwhuh?) while people in Kentucky are saying that 75% of the current growers will quit growing tobacco, thereby presumably raising the prices and reducing supply so that kids won't be as able to buy smokes.

Plus this whole deal is going to play out over the next 10-11 years, giving EVERYONE plenty of time to screw it all up, either by reenacting the price controls, since all the farmers are losing their farms (since they aren't growing anymore) or by putting more taxes on it to recover more money For The Children...

Oh, my aching head...

fyodor|10.13.04 @ 11:58AM|#

"The cost of the payments will be covered not by tax money but by an assessment on cigarette manufacturers."

Count me among the confused on this point. How is this "assessment" not a tax? If they have to pay it or else they're in deep doo-doo, then that counts as a tax, no? Maybe the point is that it's one time? Certainly its effect on prices has nothing to do with whether it's a tax, disguised or otherwise. Being coercive is what makes taxes bad, not their effect on prices. Because they're coercive they'll always have a negative effect on efficiency which can be measured one place or another if you know where to look, but personally I'm not going to judge the net effect of this by its effect on cigarette prices. Best I can tell, it's bad in the short run but good in the long run. Since the long run is more important, I think it's a net yay. So, you pay a little blood money to get out of jail, sometimes that's life....

BTW, a one-time tax may or may not effect prices, I'd have to go back to economics class and check all those graphs and such to be sure, but my offhand guess is that it would have little to no effect because it's not an ongoing cost of doing business and therefore wouldn't likely put anyone permanently out of business (which is really how cost increases get "passed on," by enabling more efficient businesses to raise prices while the borderline businesses fail, more or less...).

|10.13.04 @ 11:58AM|#

Good News: The injuns still peddle cheap smokes!

|10.13.04 @ 1:02PM|#

Why is tobacco tax so bad? Tabacco causes massive health problems, and the cost of many of the treatments have to be covered by the state. Why SHOULDN'T they raise the taxes?

|10.13.04 @ 1:19PM|#

"Because all taxes are bad." - Rothbard (paraphrasing)

Also, it is not conclusive that smokers impose more health-costs on the rest of us than non-smokers. Smokers *die* earlier then the rest of the population, by and large, which means that they avoid more of the really expensive treatments that an increasingly older population requires.

|10.13.04 @ 1:48PM|#

John, most of the costs elderly people rack up occur in the last 2 months of life - when they're dying. 40 year olds with lung cancer rank up those same costs when THEY'RE dying. The only effect the premature deaths from smoking has on medical costs is to shorten the productive working lives of the sick smokers. What they lose is not those incredibly expensive, unpleasant, non-productive last couple of years (they still have those, they just occur earlier). What they lose are healthy years, when they are making money and paying taxes and only racking up normal health maintenance costs.

fyodor|10.13.04 @ 2:03PM|#

Joe,

How about the Social Security savings from those who die younger? That's not a health system saving, but it's a government cost saving!

And, doesn't your point that 40 year olds rack up the same costs when they're dying as do the elderly when they're dying actually support the conclusion that smoking does not increase health costs? Maybe smokers don't cost the health system less if all the costs are incurred when you're in your final days, but under that formulation, it would seem like they don't cost more, either!

|10.13.04 @ 2:34PM|#

"How about the Social Security savings from those who die younger?" I imagine they are roughly balanced out by the reduced Social Security taxes collected over the course of their shorter working lives.

"Maybe smokers don't cost the health system less if all the costs are incurred when you're in your final days, but under that formulation, it would seem like they don't cost more, either!" The might or might not cost more, but they certainly contribute less.

fyodor|10.13.04 @ 2:48PM|#

"I imagine they are roughly balanced out by the reduced Social Security taxes collected over the course of their shorter working lives."

Not if they mostly die shortly before to shortly after retirement, which I bet is when most of them do! If smokers mostly kick somewhere between their late fifties and early seventies instead of between their early seventies and mid nineties, that's clearly some big savings.

"The[y] might or might not cost more, but they certainly contribute less."

Hmm, well maybe so, you clever guy, you. But in that case, the argument stops being that smokers should be taxed more because they cost us more money in health care benefits and instead becomes that smokers should be taxed so that we can collect their "contributions" before they kick off early and stop contributing, the bastards! Seems like that would have a lot less political appeal, hmmmm?

|10.13.04 @ 4:03PM|#

The might or might not cost more, but they certainly contribute less.

Damn those poor people, er I mean smokers.

Jacob Sullum|10.13.04 @ 8:09PM|#

Andy, Joe, and Fyodor,

Analyses by the Congressional Research Service, Harvard economist Kip Viscusi, and others indicate that higher cigarette taxes cannot be justified based on the argument that smokers cost taxpayers money. The CRS analysis, published in 1994, found that, depending on the discount rate used, smoking might not cost taxpayers anything and that if it did, the existing levels of taxation (considerably lower than today) more than covered any smoking-related costs picked up by the government. In an NBER paper published the same year, Viscusi concluded that, on balance, smoking saves taxpayers money. A 1997 study in The New England Journal of Medicine that looked just at medical costs (i.e., leaving out Social Security savings) found that they would be higher, not lower, if no one smoked.