Why Uncle Sam May Secretly Want You to Smoke

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Smoking may be bad for you, but it can be good for government finances

Does big, bad Big Tobacco put a price on human life? It certainly looked that way last week, when a study sponsored by Philip Morris found that the Czech Republic actually saves money when one of its citizens smokes — $1,227 in reduced health care, pensions and housing costs, on average, every time a smoker dies.

Antismoking activists quickly pounced, taking out ads in several major U.S. newspapers denouncing the study. But it's not Big Tobacco that's putting a price on human life. It's governments worldwide, including the U.S., and they collect on both ends: Through excise taxes that penalize smokers for the social costs they supposedly impose on society, and through those savings that come because smokers tend to die earlier (and thus cost governments less) than nonsmokers.

In the U.S. alone, the states and the federal government make some $30 billion a year off smokers, and this isn't even counting the savings from shorter life spans. And this is one of the most regressive of taxes; those who pay are for the most part people on the lower end of the economic spectrum who can least afford it. Although states have sued tobacco under the theory that smokers impose huge Medicare costs, in the end, as the Philip Morris study suggests, the government may be soaking smokers to pay for a phantom expense.

The numbers

The average cost of a pack of Marlboros in the U.S. is $3.15. Of that, 43 cents goes to state excise taxes. Another 34 cents goes to federal excise taxes. Throw in another 58 cents for the cost of the $206 billion settlement with 46 states — a suit, the irony of which should not escape anyone, launched to recoup "lost" healthcare costs due to smoking — and you're down $1.35 and on your eighth coffin nail before you even start paying the boys down in Raleigh-Durham.

According to the American Lung Association, Americans consume 420 billion cigarettes per year, or 21 billion packs. Which means that between the states, the feds and the trial lawyers, smokers are coughing up $30 billion a year to The Man. (Keep in mind these numbers are after John McCainís $400 billion-plus-$1.50-a-pack-tax settlement bill failed in 1998, and pending the settlement of a Clinton-launched $20 billion heath-care-recoup suit that the Bush DOJ is cool on pursuing.)

And who bears this tax burden? Statistically, those least able to afford it. Unlike most, non-sinful commodities, lower-income families tend to consume a larger amount of tobacco than higher-income families. Individuals who earn less than $30,000 a year pay only one percent in the total amount of income taxes, but 47 percent of the total cigarette taxes. And smoking is least prevalent among those with 16 or more years of education, confirming what intuition suggests — that those most likely to indulge in quick-fix, deadly-in-the-long-term behavior are those whose long-term prospects are least promising.

These people, mind you, are the same ones who not only keep tobacco farmers farming but keep small convenience stores in business by adding a drink, snack or newspaper to their daily fix. And as the rampant fencing-out of smokers from restaurants, bars, offices and even the front stoops of federal buildings continues apace, smokers are clearly on their way to harming no one but themselves. (Drinkers, especially those who get behind the wheel, are more likely to harm innocents.)

And the government money doesnít go to a stick of Nicorette in every pocket. Higher education, childrenís health care, and those "lost" Medicare costs (and probably some jackboots) have all popped up on government shopping lists — worthy items, to be sure. Just not worthy enough, apparently, to fund out of non-discriminating revenues.

Still good business

Nobodyís crying for Big Tobacco. The industry has long boasted legendary price elasticity — meaning smokers, when confronted with price increases, simply pay up — and cigarette makers have simply passed the extra costs on to consumers. Talk about a business model — Philip Morris was the best-performing Dow stock of 2000, gaining 90 percent, and reported 8 percent profits in the dismal-for-most second quarter.

But even that elasticity may be wearing thin. Other manufacturers, unencumbered by settlement costs or a $100-million-a-year P.R. budget, are challenging Big Tobacco with dozens of low-cost smokes, and black-market cigarettes (including the ones that major companies give away as marketing ploys) are on the rise. Were it not for the relatively hospitable air in Washington — John Ashcroftís Justice Department is looking to dump the Clinton suit and George W. Bush declined to add another round of excise taxes — the long-predicted death of Big Tobacco (and the concurrent rise of Little Tobacco) might have happened already.

Itís understandable that Philip Morris turned Marlboro red when the Czech report came out — with things going rather smoothly in Washington (the $7 million in contributions to the GOP are by far its best-performing investment), it didnít want to push its luck. Just like it was understandable that Big Tobacco settled with states — taking its future immunity, raising prices and running — instead of challenging whether the states really deserved to reimbursed. And itís equally understandable that governments, faced with (dubious) evidence that higher per-pack prices reduce youth smoking, would want to punish Big Tobacco for marketing to teens.

Who really pays

But the money clearly isnít coming out of Big Tobaccoís pockets, just smokers'. Why should the government be punishing them when the costs of smoking appear well-confined to the smoker — indeed when the government appears to be coming out ahead? Sure, Big Tobacco profits — thatís the business theyíre in, and itís still legal last time I checked. But you donít have to be anti-Feds to question what right the government has to take a piece of the action.

In the long-term, life is deadly. Smokers donít smoke themselves to death because of the pernicious hold of nicotine; thatís a minor physical addiction that takes three days of crankiness to break. No, they smoke because of thepsychological addiction — because they like it. Because it works — it makes them feel good, if only for a little while — and because at some level, by some rationale, theyíre willing to risk 10 years at the end of their lives in order to live the preceding 40 however they damn well please.

If they keep it up, they die early and often horribly. Thatís their choice. But itís time government stopped fleecing them all the way to the grave — all in the name of helping them quit.