Increases in Tobacco Taxes Fail to Deliver Public Health and Instead Offer Public Risks - Bing Chen

Tobacco use is a leading cause of preventable death and disease in the United States. As of 2007, 19.8% of Americans adults (43.4 million) smoked regularly, causing 443,000 premature deaths per year and a total economic burden of $193 billion dollars per year(1). Comprehensive prevention and control programs can thus save the United States millions of lives and billions of dollars every year. A potential solution has emerged in the past decade, gaining popularity and momentum across all national regions: increase taxes on tobacco. At first, the logic appears simple: raise the price of cigarettes and other tobacco products, and people in every income bracket will have to cut back on tobacco purchases, effectively curbing use. What many politicians and researchers fail to consider, however, is the economic, social, and psychological implications of taxing a condemned product such as tobacco. Raising taxes on tobacco products will only lead to government dependence on tobacco sales and companies for revenue, while this single-factor approach to tobacco control holds no long-term prevention of actual smoking and usage. Worst of all, an increased tobacco tax is easy to evade and will encourage the growth of dangerous black markets and bootleggers.

Recent History of Tobacco Tax Increases

Since 2002, 44 states have passed more than 80 separate tax increases on tobacco products. Support has been strong and bipartisan, with 36 of the state tax increases signed into law by a Republican governor and 34 by a Democratic governor. The average size of the tax increases was 54 cents per pack(2). In 2007, 11 states enacted tobacco tax increases, and current bills to further raise taxes on tobacco products are active in 22 states(3). As of January 1, 2008, the median state excise tax on a pack of cigarettes is $1.00, with Missouri with the lowest tax ($0.17) and New Jersey with the highest tax ($2.57) per pack(4).

Many states look to these increased taxes as a way to generate much-need revenue for state healthcare programs. In Massachusetts, if the state manages to raise its cigarette tax by $1.00 per pack, it can generate a projected $175 million dollars per year. With the state government in need of an estimated $869 million for the next year in order to maintain the State Children's Health Insurance Program (SCHIP), politicians are quick to jump on any form of additional state revenue(3).

Raising Taxes on Tobacco Products Causes Government Dependence

While tobacco taxes would generate lucrative revenues for state governments, dependence on those revenues can cross into questionable moral territory. The paradox: can the government expect to employ effective and comprehensive anti-smoking and tobacco prevention campaigns while simultaneously banking on the large cash flow rolled in by the tobacco product market? Answer: no.

The state of New York raised its cigarette excise tax by $1.50 earlier in 2008 and though the Health Commissioner and Governor both boasted of expected significant decreases in smoking, the government has already made room in the state budget for the projected $265 million per year raked in by tobacco sales(5). The truth, however, is that even though supporters of higher excise taxes like to frame tobacco sales as a public health issue, studies have shown no connection between increased prices and decreased smoking(6). Cigarette and tobacco taxes are simply a government cash cow, a way to generate easy revenue without regard to the social responsibility needed to tackle a problem so multi-faceted and diverse as tobacco addiction. What politicians fail to inform the public is that, when they raise excise taxes, the government makes more money from cigarette sales than any corporation actually involved in the tobacco industry. In Massachusetts, government officials and supporters alike have failed to acknowledge that in order to reach the revenue goals for the State Children's Health Insurance Program (SCHIP), they actually need more people to smoke(7). Not just a few new smokers, either; Massachusetts will need 9 million new smokers in the next 5 years to maintain SCHIP and 22.4 million new smokers for the following 5 years(8).

The government cannot allow itself to depend on cigarette consumption to fund essential healthcare programs and services. Even if tobacco purchases decrease slightly in the short-run after the tax increase, the inherent incentive for governments not to enact effective anti-smoking and tobacco prevention programs that will reduce cigarette consumption in the future poses a far greater risk and danger to public health(9). Furthermore, the state governments would perpetuate the illusion that buying cigarettes would technically help fund healthcare programs, thereby giving tobacco companies and the smoking image a valuable positive platform. The general population needs to keep an accurate perspective on the proposed tax increases. Government officials have framed the bill to look like a public health intervention, but the true frame of tobacco sales is economics. Tobacco generates large monetary funds, and state governments want a larger piece of the addiction pie. They simply refuse to admit that they eat out of the same one as tobacco companies.

Raising Tobacco Prices Will Not Affect Actual Usage

Tobacco addiction cannot be defined by simple nicotine addiction or the exact price of cigarette and tobacco products. The act and continuation of smoking hinges on a variety of interactive factors, including past history with tobacco, current socio-economic status, the surrounding social environment, and personal values and perceptions. Changing one factor, the price of cigarette products, but failing to consider the socio-psychological attachments of smoking cannot produce any long-term effect against tobacco usage.

Advocates of the tax hikes rely on the Health Belief Model, which assumes that an individual makes the decision for a behavior change solely on the perceived costs or benefits of the action. They believe as long as they increase the "Perceived Costs of Smoking" by raising the price, people will naturally stop purchasing tobacco products. These advocates do not understand that traditional public health intervention models, like the Health Belief Model, lack the dynamic adaptability needed to affect a large population of diverse people. Americans fall prey to a widespread range of unhealthy behavioral habits, and even habits as destructive as tobacco abuse have continued to skyrocket in the past few decades(1). The lesson learned is that people rarely act rationally or individually, and people especially do not make health decisions, such as whether to abuse tobacco products, inside a vacuum. A single-factor approach in a public health intervention is not enough to control a problem as complex as tobacco addiction; a successful intervention must either tackle multiple actors affecting usage, such as psychosocial reasons for addiction or positive reinforcement for usage from the surrounding environment, or provide the social support system necessary for people to stop smoking.

Taxes on bad habits are popular with governments because of the thick revenue stream, but these taxes are also incredibly regressive. People in the lower-income brackets simply spend a greater percentage of their income on tobacco, even when they cannot afford it, because they use tobacco as a coping device for general life stress and pressure(10). In fact, increases in tobacco taxes affect the lower income spectrum much more than the middle and higher income end, thereby placing the burden of the cost and government revenues on the shoulders of young adults and minorities. Half of current smokers come from homes that earn less than 200% of the federal poverty line, and 43% of smokers are aged 24 to 44(8).

These are people who likely strain their finances by purchasing tobacco products even without the increased excise taxes; raising the price on cigarettes will not deter them now, either. Lower income and younger smokers do not start or continue to use tobacco products based on monetary cost. In an actual case study done in Taiwan to evaluate the effects of increased tobacco taxes, the conclusions even stated the many obstacles that would inhibit a successful intervention. The researchers suggested that middle and higher income level smokers, who can monetarily afford to smoke, do not base tobacco use solely on price. They can switch from a premium or higher brand of cigarette to a lower premium brand to cut costs, while still maintaining the addictive habit(11). Unless the government addresses the real reasons why people abuse tobacco, no intervention will find success or long-term stability.

Increased Tobacco Tax Easy to Evade

In addition to the arguments brought up in the previous section about the little effect that increased taxes would play on actual tobacco usage, another extension that tax advocates try to ignore is the case of consumer evasion. Not only can people switch from more expensive brands to cheaper cigarettes, but also people can ship cigarettes from states that have lower excise tax rates, such as California or Idaho(12). Higher domestic tobacco prices can also drive people to ship tobacco from overseas, thus evading the higher costs without cutting down on tobacco usage. As long as the government fails to curb the actual demand for tobacco, there will always exist a market to cater a supply to that demand, whether that market is the American tobacco industry, overseas corporations, or black markets and bootleggers.

Black markets specialize in the illegal sales of government-related or prohibited products. These markets are usually underground and run by organized crime syndicates in large urban areas. When the state of New York raised taxes on tobacco products, the backlash directly caused an invigorated supply for bootlegged cigarettes, which crime syndicates used to fund international terrorist organizations. Crime syndicates shipped cigarettes and tobacco from other states with lower excise taxes or shipped products in bulk from overseas manufacturers where labor and material was far cheaper than the United States. Just one van of cigarettes could produce a profit of $10,000(10).

Many lower income and young smokers live in cramped urban areas, where their environment and socio-economic status play a significant role in lifestyle behaviors and decisions. Even though raised taxes would make cigarettes and other forms of tobacco more expensive, the black market and bootleggers provide the same supply at a lower price, thus canceling any deterring effect of the health intervention. Critically, the health intervention would actually backfire, because the tobacco products supplied by crime syndicates may contain even more harmful or unknown substances. Similarly, any illegal activity undermines state and federal authority and safety, which in turn undermine the health of the general population. By driving people to turn to illegal products, the government also risks alienating smokers and weakening the effect of other anti-tobacco campaigns. Black markets act as a crucial confounder to the increased tax proposal, because they steal possible revenue from the government by illegally selling tobacco products at a lower price but they still contribute to the health risks and disease outcomes of tobacco abuse.

Conclusions

The United States could save millions of lives and billions of dollars per year as long as the government employs effective and comprehensive tobacco prevention campaigns. Increased tax proposals on tobacco products, however, fall neither under effective nor under comprehensive. Despite the recent popularity of excise tax increases, research studies and previous examples have shown the risks and dangers associated with such a narrow-minded design. Even though states, such as Massachusetts, hope to fund healthcare programs with tobacco revenue, such dependence on the tobacco industry can only lead to moral paradoxes in the future. Increased taxes should be framed as an economic issue rather than a public health intervention. The burden of the cost lands on the shoulders of lower income and young adult smokers, whose addiction to tobacco extends past simple price numbers and who cannot be expected to quit tobacco abuse from such a single-factor and individualistic solution. Worst of all, these higher prices for products are easy to evade, especially with the presence of illegally run black markets and bootleggers, which actually threaten social stability and further weaken the public's safety.

An Alternative Approach: Using Economics for Public Health Benefit

Despite the significant shortcomings in raising taxes on tobacco products as an attempt to curb tobacco use, more regulated and relevant taxation can produce fruitful and advantageous results when combined with effective anti-smoking campaigns. Instead of depending on tobacco revenue to fund statewide health programs, increasing tobacco taxes by a slight amount and then using the revenue generated to solely fund anti-tobacco campaigns can prevent usage and abuse, as well as allow the government to present a united front on the dangers of tobacco products. Well-funded and well-designed tobacco campaigns could target the real reasons why people use tobacco products, and these public health interventions would actually affect and decrease the number of smokers in the United States, which simply raising tobacco prices have proven otherwise. Lastly, a controlled and small increase in taxes, merely enough to fund anti-smoking campaigns and treatment for quitting, would deter consumer evasion and weaken the need for black markets and illegal sales of tobacco products.

Recent History of Anti-Tobacco Campaigns

In 1997, the United States government won a settlement worth $13 billion against the Tobacco Industry for fraudulent and misleading advertisements about the health effects of smoking. The settlement went toward creating and financing the Public Education Fund from 1998 to 2003, which in turn financed all of the major anti-tobacco campaigns in the United States for those five years(13). Unfortunately, the obvious conflict of interest that occurred from tobacco companies attempting to fund anti-tobacco campaigns preceded a long line of ineffectual anti-smoking ads. Alarmingly, studies have shown that Tobacco Industry-led anti-smoking campaigns gave youth a more favorable view toward cigarettes -- the opposite of what a public intervention should achieve(13).

In 2000, Florida launched an anti-smoking pilot program called the Truth campaign aimed at the prevention of youth usage. The Truth campaign used edgy television, radio, and print advertisements featuring youth-led activism against tobacco companies. It focused on empowering teens to combat the Tobacco Industry and was the only such national campaign not directed by the tobacco companies themselves. Even though within two short years the Truth campaign had managed to cut youth smoking in Florida by nearly a third, loss of funding -- no doubt due to the Tobacco Industry's reluctance to continue such an effective anti-smoking campaign -- forced its discontinuation(14).

Currently, Florida is experimenting with a myriad of different anti-smoking campaigns, each carefully tailored to appeal and affect a specific demographic. "I care" is a promising campaign aimed at adults, particularly parents. The campaign uses somber television ads to depict how tobacco often aggravates child neglect and cripples familial relationships. These new campaigns have caused a significant spike in smokers seeking help to quit from state stop-smoking hotline numbers. The various anti-smoking campaigns cost a combined $17 million per year, which the state takes from a recent $58 million settlement against the tobacco companies(15). Unfortunately, there remains insufficient evidence to determine how long these campaigns can be sustained without further funding.

Transforming the Economic Frame into a Public Health intervention

Raising taxes on tobacco products should still be framed as an economic issue, but governments can and should use those economic sensibilities to fund actual public health interventions. Instead of relying on the taxes as a simple cash cow to finance unrelated state programs, the revenue should solely be used for anti-tobacco campaigns or treatment services for tobacco abuse and addiction. That would erase the moral dilemma of state governments employing effective campaigns while they simultaneously bank on large revenues generated from tobacco sales. Instead, state governments can have a united front on fighting the spread of tobacco products: revenue from increased tobacco taxes fund tobacco prevention and treatment programs, and the resulting decreases in smoking and tobacco purchases would directly correlate with decreased needed expenditures for anti-smoking campaigns. Similarly, the United States spends $193 billion per year on health-related smoking costs(1), so effective campaigns that actually curb tobacco usage would allow governments to cut down on those costs and allocate those resources to other healthcare areas.

Many of the major anti-tobacco campaigns of the past decade were designed and funded by tobacco companies. Thus, much of the anti-smoking movement depended on the assistance from the very source that perpetuated and provided the products. Tobacco still remains a cause of leading preventable death and disease will likely remain that way unless effective campaigns are launched large-scale across the country for a consistent period of time. Regrettably, the few anti-smoking campaigns that actually achieve significant success lack the monetary resources to continue and expand(14). Therefore, revenue from tobacco taxes would act as an integral sponsor to enable the implementation and execution of actual public health interventions. Success of the tobacco tax would thus not be defined by decreases in tobacco purchases but rather defined as a way to fund existing and new anti-tobacco campaigns.

Worthy Anti-smoking Campaigns in Need of Funding

Whereas simply increasing the price on a tobacco product does not produce significant decreases in actual tobacco usage(6), effective anti-smoking marketing campaigns can produce noteworthy results in preventing and treating tobacco addiction. Mass media anti-smoking campaigns in particular have shown the best success in reducing cigarette consumption and in helping people quit smoking(16). The Truth campaign exemplifies how aggressively attacking the Tobacco Industry to challenge social norms and perceptions may appear controversial but ultimately achieves the most effectiveness. The campaign only ran for two years, however, due to limited funding and pressure from tobacco companies. Within those two years, the Truth campaign managed to cull high school usage of cigarettes from 28% to less than 23%, a drop of more than 1 million smokers(14). Other current media-based anti-tobacco campaigns, such as the "I Care" campaign aimed toward parents, have caused a skyrocketing number of adult smokers in Florida to call quit-smoking hotlines for help(15).15 Mass Media anti-tobacco campaigns have shown great promise for success in health promotion, but they require sustained funding or else these campaigns will simply stagnate in the developmental or initial stages or, such as the fate of the Truth campaign, fade away into extinction.

Carefully regulated tobacco tax increases can provide the sustained funding needed. Anti-tobacco campaigns will no longer have to rely on the tobacco companies for financing, and the Tobacco Industry can stop designing anti-smoking campaigns that do more harm than good. If the successes in reducing tobacco usage on the state level are extrapolated to the national level, the United States should see a significant decrease in tobacco addiction and reliance and hopefully usher in a new era of anti-tobacco campaigning and prevention.

Modest Increases in Tobacco Taxes Will Off-set Consumer Evasion

As long as the sole purpose of increased tobacco taxation is to fund anti-tobacco campaigns, the increases in tax should be minimal. Part of the 1997 settlement from the Tobacco Industry required the tobacco companies to donate $300 million per year for the Public Education Fund to fight and prevent tobacco addiction. The $300 million per year sum was enough to fund major, albeit ineffectual, national anti-tobacco campaigns; financing for the Truth campaign also came out of the Public Education Fund. In order to raise $300 million per year from tobacco taxes on the national level, that would only cost a penny and half per pack of cigarettes(14). Compared to the $1.00 and $1.50 increases in tobacco taxes from states such as Massachusetts and New York(3), respectively, a modest $0.05 to $0.10 increase in tobacco taxes should deter people from seeking suppliers outside of the country or from black markets. Many states try to enforce high taxes on tobacco because the governments plan to use the generated revenue on expensive public programs; Massachusetts' State Children's Health Insurance Program cost an estimated $869 million per year to maintain(3), compared to statewide anti-tobacco campaigns that cost in the ballpark of only $17 million per year(14). The lower expenditures needed means lower taxes. Thus, tightly regulated tax increases solves the problem of consumer evasion and side-steps the many disadvantages of illegal sales, such as undermining government authority and the increased cost of law enforcement and terrorist funding.

Conclusions

While increased tobacco taxation by itself is too limited in scope to reduce tobacco use, moderated taxation can provide the necessary funds to implement effective anti-tobacco campaigns without relying on the Tobacco Industry for financing. Funneling the revenue generated from tobacco sales into prevention and treatment campaigns also successfully allows governments to stand united against the adversities of tobacco abuse. As long as tobacco taxes are kept strictly for the use of anti-tobacco campaigns, only a minimal increase in taxation would be required, thus preventing consumer evasion and the growth of black markets.

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