California lawmakers are proposing to increase taxes on cigarettes by $2 per pack in order to fund increased entitlement spending. Instead of placing faith in the morality of their cause, lawmakers would do better to place their trust in economic and public health realities.
According to the Los Angeles Times, the sponsor of the tax hike measure, Sen. Richard Pan (D-Sacramento), told attendees of an August 26 pro-tax rally, “We know raising the tobacco tax has been proven to prevent and reduce smoking, especially among young people.”
Pan may “know” this to be so, but it’s not.
In a 2008 study published in the peer-reviewed journal Health Economics, McMaster University economics professor Phillip DeCicca and a team of international economists studied data from the U.S. Census Bureau and the U.S. Department of Education to determine whether sin taxes discourage young people from smoking tobacco.
DeCicca and his colleagues concluded, “After controlling for differences in state antismoking sentiment, the price of cigarettes has a weak and statistically insignificant influence on smoking participation; and state anti-smoking sentiment may be an important influence on youth smoking participation.”
In other words, tobacco taxes are not “proven to prevent and reduce smoking, especially among young people.”
To quote the late, great economist Milton Friedman, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” The intentions of tobacco tax supporters may be benevolent, but the real world implications of tobacco tax hikes and other sin taxes are not.
Even sin-tax supporters admit the regressive nature of taxing products some people may enjoy, such as a cold can of soda or a cigarette. The impact of a regressive tax on an individual is inversely correlated with that person’s income, so tobacco taxes hurt lower-income individuals more—all in the name of helping them.
As Baruch College-City University of New York health economist Dahlia Remler writes in her paper “Poor Smokers, Poor Quitters, and Cigarette Tax Regressivity,” published in the American Journal of Public Health, tax policies increasing individuals’ economic hardship are not beneficial, even if they satisfy policymakers’ moral urges.
“People respond differently to tax increases: some will quit, others will cut back, and still others will not change their smoking behavior at all,” Remler wrote. “Higher cigarette taxes cause hardship among some poor individuals who find it difficult to quit. In the drive for better public health, we should acknowledge the price paid. Standard principles for assessing the equity of taxes should not be forgotten.”
In addition to the disparate impact of sin taxes, empirical evidence suggests tobacco taxes can actually decrease public health. In a study published in the RAND Journal of Economics, a leading scholarly economic journal, University of Maryland economics professor William Evans studied data from the Centers for Disease Control and Prevention to determine how tobacco users’ purchasing habits change in response to tax hikes. Surprisingly, Evans found tax hikes spurred smokers to start using cigarettes with more length and higher tar content. The tax hikes caused smokers to switch to cigarette brands likely to do worse harm to their health.
California lawmakers may have faith they are doing the right thing by increasing excise taxes on products deemed sinful, but crafting “faith-based policy” generally leads to those policies failing to achieve their goals.
