What to do with tobacco taxes?

by Carl V Phillips

This is tangential, but goes to some big-picture issue, and it is bugging me so much I want to complain about it.  It also relates to those anti-THR liars at the American Lung Association (ALA) and the Campaign for Tobacco Free Kids who seem to be spearheading these lies about economics.

Presumably due to the not-so-secret secret coordination of the ANTZ and their pet reporters, trying to create the illusion of spontaneous expressions of concern, there have been a spate of articles recently about how the government is not giving the tobacco control industry (TCI) what they think they are owed.  In this piece (a random selection from any of a hundred I could have chosen), an ALA representative suggests that all the money the states collect from the Master Settlement Agreement (MSA) should be spent on the TCI.  The mind boggles at what the TCI would do with the literally billions of dollars more every year this would represent.

The MSA is often described as a fee paid by the cigarette manufacturers, but this is a carefully engineered lie.  It is really a hidden sales tax on the price of each pack of cigarettes, that happens to be collected by the manufacturers before being paid to the government — it is paid by smokers, not industry.  This probably annoys those who do not really care about health, but only about hurting the industry (though most of them are probably too dim to see through the lie).  But it actually serves a purpose for those who want to reduce smoking rates, since like any sales tax or other price increase, it discourages consumption.

Now setting aside the question of whether such taxes are ethical and otherwise proper, let us assume that the total taxes are set at the “right” level (also setting aside the question of what that means, and the ethics and question of whether governments should even be doing this) for this goal.  Does this mean that the amount collected is exactly the “right” level (same caveat) to spend on anti-smoking efforts?  Obviously not.  There is no reason to expect any relationship whatsoever between those numbers.

You do not need a degree in economics to see that.  It is clear that even if one likes what the TCI tries to do, much of what is spent on their research and social manipulation projects is already wasted.  They have no idea what to do with the money they have.  The mind-blowing massive increase that would come from spending all tobacco taxes on them would clearly be wasted.  Of course, they would love to quintuple their salaries, but I think most everyone else would agree this counts as a waste.  [UPDATE:  I should have noted here that even the American Legacy Foundation, the anti-tobacco “charity” created with billions of dollars of MSA money, agrees that there is nothing useful to spend the money on.  They have just been hoarding the money, and spending it on lavish salaries for their executives, rather than spending it on marketing, programs, or research.  There is no clearer evidence that there simply is nothing useful (by their own measures) in anti-tobacco that is not already over-funded.]

What should the extra money be spent on, then?  It does not matter.  The TCI people are specifically complaining that it gets spent on fixing bridges.  (They are idiots.  We need to spend more on fixing bridges.  But that is not the point…)  But it does not matter whether it goes into the state’s general coffers, or is used to reduce income taxes, or is doled out to the people, or whatever.  No matter which, it has served its real purpose (caveat again).

This can go the other direction too.  As I show in this paper, the optimal tax on smokeless tobacco or e-cigarettes — optimized from any of several perspectives, including maximizing the population health effects — is zero.  (It is actually negative — that is, a subsidy — but that is unrealistic to even suggest.)  So does that mean that the optimal expenditure on efforts to discourage use of these products is zero?  The TCI certainly does not think so, and even non-ANTZ might see some value in putting a few resources into discouraging non-smoking children from using these products.

So this claim that they ought to get a larger share of the taxes, just because those taxes happen to be tobacco sales taxes, is just like most of their anti-tobacco rhetoric:  it is complete fiction and demonstrates their lack of honesty; it shows contempt for people’s understanding of science (which might be justified as a practical matter); it tries to increase people’s misunderstanding of science (which is clearly not justified as an ethical matter); and it shows their fundamental self-centeredness and general contempt for humanity.

Perhaps if they are so sure that these numbers should match, someone should propose making them match — by lowering tobacco taxes by more than 90%.  Their “logic” supports that solution to the disparity just as effectively as it supports their personal enrichment proposal.

4 responses to “What to do with tobacco taxes?

  1. Here’s another idea. Supposedly the sin taxes were set up to reimburse the state for all the extra money it had to pay out for the health care expenses of smokers. Obviously, they don’t need the money for that, since they have enough left over to repair the bridges. So how about if everyone who ever smoked gets to put in for a rebate on their sin taxes. They can use it to offset their higher health insurance costs if they test positive for nicotine. And if they got fired for testing positive for nicotine, they can use the money for food, shelter, and other household expenses.

    • Carl V Phillips

      “Supposedly” is the right word, isn’t it? Just like: supposedly prohibiting bars from allowing smoking was to protect the staff (except, of course, it was really to torture smokers into quitting). They trick the public into supporting the taxes by claiming it is reimbursement for costs inflicted (when, in reality, the costs are negative — smokers save the government money), while it is really designed to inflict pain on the consumer to torture them into quitting. That does not necessarily mean it is not the right thing to do (which is obviously not the same as saying “it is the right thing”), but lying about it is definitely not ethical. It also suggests that the proponents know that if they told the truth, people would not support them.

      It would indeed be most fair to figure out how to channel that money back to the smokers, if it could be done without undermining the incentive effect (repeat caveat). There are many ANTZ who just hate smokers for being sinful and refusing to obey the demands of “their betters”. But if we set aside this tiny hate-fueled minority, everyone else can agree that when the government makes smokers (who are already poorer than average) poorer, taking away money they could spend on their children or otherwise improve their lives, this is a bad thing. The goal of most people who support the taxes is not to make smokers worse off (again, with the exception of many ANTZ, who are actively trying to torture smokers and other tobacco users) but to create a disincentive to buy that next pack. The fact that it also redistribute wealth from poorer people to richer people, inflicting substantial pain on the former, is an unwanted side effect (again, except for the genuinely evil faction of the TCI).

      Problems like this can be almost-solved pretty easily for taxes like this (those that are designed to discourage something) that have broad impact. For example, if people are driving in a city more than is optimal, a tax/toll of some sort can be imposed to make it more expensive. Then that revenue can be divided back among the people through a flat rate income tax credit or similar reimbursement. It still redistributes wealth some, of course, from heavy drivers to non-drivers (and this is probably from richer people to poorer people on average), but if most people drive about the same amount (but a little less with the toll, which is the goal) then the payout makes everyone about even in terms of wealth, but the incentive is still there.

      This is much harder to do for smoking. If smokers all got such a tax credit, then the unintended impoverishment would be eliminated, but so would the incentive to quit (there would be an incentive to smoke less, but not to quit because then the reimbursement would be lost along with the taxes. The solution to that would be to include former smokers in the payout pool, at least for some period after they quit. This keeps the incentive-to-quit effect of the taxes. Then, however, there would be the unfortunate situation of people having the incentive to qualify as smokers in order to then quit and collect the compensation. You could tinker with the rule to minimize this incentive (e.g., you have to smoke for a while to qualify for the former-smoker payments, they do not last too long, you cannot collect on them until after age 30), and to the extent that anyone was still willing to take up smoking merely for the few thousand dollars in compensation for a while after they quit, it is a reflection of bigger problems in our society.

      Anyway, that is a window into what economists sometimes try to do to optimize public policies. Sometimes it does get done, though often (as with any science) the science gets overridden by political goals that have nothing to do with getting the best outcomes for society.

  2. Lowering tobacco taxes to reasonable levels would reduce the smuggling and black market in tobacco to about the same level as the smuggling and black market in broccoli. The only ones really hurt would be the criminals and pseudo-criminals in Tobacco Control who charge $75,000 to sniff the air in a bar where no one’s smoking and then tell you there’s less smoke in the air.

    Carl, their demand for ALL the money is simply their old game of demanding the stars in order to just get the moon. The sad thing is that over the last 20 years they’ve all too often demanded the stars only to find gullible politicians and frightened innocent people giving them the stars. Do you think they EVER in their wildest dreams 35 years ago thought they could ban smoking in ALL airplanes? Or 25 years ago ban it in bars? Or fifteen years ago ban it in casinos or on outdoor patios? Or even just five years ago ban it in private apartments, public housing developments or outside on streets and beaches?

    They’ve made crazier and crazier demands, and people have just given them what they asked simply because they waved helpless workers and sick babies in the air.

    Carl, did you yourself ever think you’d see college campuses not just banning smoking in classrooms, but in all dormitories as well? And out in the open air on campuses? And even theoretically run around inspecting students’ mouths to make sure it was REALLY just Doublemint gum they were chewing?

    Are they crazy in their demands? Of course they are. They’re crazy in general. But they’ve been pandered to for so long that they’re like spoiled children who think that simply throwing a tantrum and lying on the floor screaming at the top of their lungs will get them anything they want.

    And unfortunately, so far they’ve been right. And since the only victims were smokers, no one cared.

    – MJM

    • Carl V Phillips

      Rather a different issue, about them increasing their demands over time about how much regulation is proper, though it probably has set them up to act like spoiled brats. While to some extent this is just the typical posturing of all sociopaths who just say anything it takes to get more for themselves at others’ expense, there seems to be genuine innumeracy about the fact that there is no relationship between taxes collected and what ought to be spent in that area, and thus some people actually think there is some merit to this nonsense.

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