Smoking costs lives but it saves money

Posted on by TheLastPsychiatrist and tagged , . Bookmark the permalink.

BBC discovers a Philip Morris study that found that the Czech Republic could save $147M through the early deaths of smokers.

The study arrived at that figure by subtraction:
cost to the state of $403M – ($1M in pension and other government services + $552M in cigarette taxes) = $147M savings. Welcome to flavor country.

Leaving aside moral issues, the study had serious technical flaws. For example, while it counted early death as savings (e.g. they weren’t draining the system) it forgot to add the actual increased costs of caring for smokers and their cancers and heart attacks.

But the critique has a deeper question: are cigarette taxes actually helpful to the state? They sound like they bring in revenue.

Sin taxes do change behavior, but they don’t augment the coffers of the government because they are not new assets, they are merely a wealth transfer. Consider who they are transferring from– the less “affluent”, many of whom are already receiving government assistance. A government could, if it wanted to, generate the exact same revenue by taxing something else (car mileage; tomatoes; movie tickets; alcohol; etc). Granted, it is politically easier to tax cigarettes, but that’s not the same as counting it new revenue.

The tax revenue is not new because in an economy without cigarettes, that revenue would have been collected by another tax, i.e. the government was going to get that money one way or another. It wasn’t the cigarettes, per se.

Again, for the purpose of curtailing smoking the taxes may be beneficial, but you can’t consider cigarette taxes a new source of revenue as that revenue would have been generated in other ways.

So in the Philip Morris analysis, counting the $552M in cigarette taxes as a benefit misses the point that that $552M was going to be collected anyway, regardless of the existence of cigarettes. Smoking, therefore, is only a negative to the state. (I am not including tobacco companies’ role in employment, etc.)

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5 Responses to Smoking costs lives but it saves money

  1. Guy Fox says:

    The tax revenue is not new because in an economy without cigarettes, that revenue would have been collected by another tax, i.e. the government was going to get that money one way or another.

    Unless the smokers are canny enough to warrenbuffett the money into a tax-sheltered asset.

    Yes, tobacco taxes are, by and large, a tax on the poor as are sales/value-added taxes and, in most countries, flat taxes. Lotteries, on the other hand, are a tax on the stupid.

  2. rDigital says:

    I love it when people remove 1 variable from a study and pretend that the rest of the factors just sit in a vacuum untouched. Nothing happens in a vacuum, it’s a living system.

    Well played, TLP.

  3. RC says:

    Sin taxes should serve to alter behavior. When that fails, they should at least see to it that individuals engaging in such behaviors carry a heavier relative tax burden. There is a bit more fairness that way, even if the tax burden on society as a whole remains the same.

  4. robotslave says:

    This particular pro-smoking argument isn’t a new one; in fact, it was a favorite of America’s favorite contrarian [warning: propaganda] before he landed his gig at The New Yorker.

  5. Pingback: Untitled 1

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