Teacher Man is from Canada, but his article applies to US residents too…especially when you consider Mayor Bloomberg’s efforts to ban large soft drinks in New York City.
When a resource is available for everyone to use at little-to-no cost, it is always used by some more than others, and it is often abused. The term for this sort of circumstance has become known as the, “Tragedy of the Commons.” The idea originated in England when common land that was available to use for grazing purposes. Naturally, since no one owned the land, no one took responsibility for overgrazing, and consequently, the land was eventually used beyond repair.
It is unusual when a problem that is caused by overgrazing can successfully be compared to one caused by complex medical procedures, but there are in fact some similarities. Because of our universal healthcare in Canada, it is inevitable that some people will use this public service more than others, and I believe most Canadians are willing to except that compromise. The problems start to come when some citizens willingly partake in activities that are well-known to increase the need for medical care. When that medical care is paid for by taxpayer dollars, it becomes a controversial topic indeed.
Putting a Price on Poison
Before, I go any further, I should apologize in advance if I offend anyone by talking about inhaling poisons from a strictly financial point of view. My mother has smoked her whole life (she got addicted as a teenager back when the research was still “inconclusive”), and I know as well as anyone that the human toll that it takes cannot be quantified, and that cigarettes are an addictive poison no matter how they are packaged. For the purposes of this article, I’m going to dispassionately address the purely financial aspects of the industry.
When I first starting looking at some statistics for this post I figured that it would show cigarette smokers received a disproportionate share of government money, and that their personal choices would be paid for by other taxpayers. I was partially right. In 2002 the USA’s Centers for Disease Control and Prevention claimed that each pack of smokes sold cost the USA more than $7 in medical care and lost productivity (or $3400 a year per smoker). Canada did not have as conclusive a study, but one could assume that our higher taxes on tobacco products would help offset some of these costs. In fact, we are forgetting one key aspect says economist Kip Viscusi from Vanderbilt University. Smokers die much earlier than non-smokers, and consequently they use much less pension benefits and other forms of social security. Viscusi calculated that the country actually had a net cost savings of 32 cents on every pack of cigarettes sold. When I looked into the study, it did not factor in the lost productivity of these people when they passed away 10+ years before their time, but I gather they believed the majority of these years would be retired years anyway.
It’s All About Incentives
So if smokers already pay their fair share, are there other reasons to increase the taxes on tobacco products? Studies across the international spectrum shows that increasing the taxes and the subsequent overall price on cigarettes does have an effect on consumption (although the studies do differ on the degree to which this was true). It appears that as a general rule of thumb, a 10% increase in the price of cigarettes correlates to a decrease in consumption by 3-5%. Youth, and low income smokers will disproportionately quit consuming at higher rates, which is a good outcome in my books. I’m not sure how this math would play out as you increased the price by higher percentages, as the addictive quality of tobacco products would seem to make the demand fairly inelastic.
The Al Capone Effect
Too much tax on tobacco products just leads to a black market for the product and then money must be spent in order to police that illegal activity. Furthermore, if we really start to examine the Tragedy of the Commons as it pertains to universal healthcare, don’t we also have to look at things like alcohol use, as well as junk food and fast food? I’m sure studies would reveal that destroying your liver costs taxpayers money, as does eating at McDonalds too often. Should we be placing a consumption tax on those products and if so, to what extent? Obviously we have fairly high alcohol taxes here in Canada, and the theory is that if you can afford alcohol, then you can afford to pay the tax. In practice this is often a tax on the people that can least afford it, yet it is still their decision to make.
Why Stop at Tobacco?
How about this argument if we take the debate to its logical conclusion. If we want to raise taxes on certain to products to offset their cost to “the Commons” and encourage certain behaviors, why don’t we tax junk food, and use the money to subsidize the price of fresh fruit and vegetables? I know this is controversial, and I’m fairly certain the government would find a way to mess up the regulations and create a regulatory body that was hugely bloated, but it’s still an interesting idea from a policy perspective right? If we raised the cost of fast food and junk food overnight by 20%, would people eat it less often? If we lowered the cost of healthy food 20%, would it make it more accessible to people? If studies for alcohol and tobacco are any indication, it probably would.
I’ve usually got a fairly strong libertarian streak, but when your choices affect my pocket book I do take an interest. I expected to get up on my pedestal and say that taxes on cigarettes should be even higher than they are now. Once you run the numbers though, we probably have a pretty good balance here in Canada. I think if it went any higher, we would just be funneling money into the pockets of gangs who would become mega-retailers of black market tobacco. That reality has all kinds of negative implications for “the Commons”.
Latest posts by Guest (see all)
- How and Where to Invest Your Money Wisely - November 4, 2013
- Building Good Credit Early for a Better Credit Score - August 20, 2013
- Low Cost Investing Options - February 20, 2013