Georgia is facing a budget gap estimated at close to $1 billion, which means smokers can likely count on paying more tax on their cigarettes.
Slapping smokers with a heavier tax burden is a favorite pastime of state and federal government these days. Georgia increased its per-pack tax by 25 cents in 2003, from 12 cents to 37 cents, and newly elected President Barrack Obama jacked up the federal tax on cigarettes by 61 cents to a little more than $1 in April 2009. Now, after Florida increased its cigarette tax by $1 last year, bringing in an additional $408 million in revenue for that state, Georgia’s legislature wants to raise our state’s cigarette tax by $1 per pack as well. The bill’s supporters say the increase will bring an additional $350 million to Georgia’s coffers.
So with $1 in federal tax, plus $1.37 in state tax, smokers in Georgia will be paying about $2.37 in tax on each pack of cigarettes they buy. At present, on average, a name brand pack of 20 cigarettes costs almost $5—about the same as one espresso drink.
The American Cancer Society (ACS) is behind Georgia’s legislation, claiming it’s only fair that people who cost the health care system more money should have to pay more taxes. But experts say taxes on cigarettes are regressive. A regressive tax is basically one that takes a bigger percentage of income as it moves further down the income bracket. Smokers are more likely to inhabit the lower income brackets, which means poor families will be hit hardest by the tax. Some experts also say smokers require less public support in old age.
Despite all that, cigarette taxes are popular and easy to pass into law. Why?
“Smokers have been cowed into thinking they are bad people,” says Jane Gravelle, a senior specialist in economic policy for the Congressional Research Service (CRS) in Washington, D.C. So not many people speak out against taxing cigarettes.
SMOKERS ARE CHEAPER BECAUSE THEY DIE SOONER
In the1990s, Gravelle, a Georgia native, and her CRS co-worker Dennis Zimmerman were assigned to research the effect of a $1 tax President Bill Clinton wanted to put on cigarettes. They looked at studies by scientists and economists from across the nation and came up with an assessment generally considered so rude that Capitol Hill was thrown into a ruckus: Smokers actually save Americans money because they don’t live as long as the rest of us.
“If you’re justifying a cigarette tax because of the burden smokers place on other people, we didn’t think it was justified,” says Gravelle. “The way that other researchers have looked at it, they don’t consider that smokers die sooner. Lung cancer is pretty cheap as illnesses go.”
That’s because it’s much quicker than the incremental physical breakdown that occurs in one’s 70s, 80s and 90s.
“Basically, you add up all the cost over a lifetime, including absenteeism from work and a whole slew of factors—lung cancer, heart attack, emphysema—and you find that a smoker who dies at 65, before he collects Social Security benefits, is less costly than an Alzheimer’s patient who dies at 85,” explains Gravelle. “Some illnesses are quicker than others.”
If targeting products that cost society money is the goal, says Gravelle, a higher tax on alcohol might be considered.
“There is more economic justification for a higher alcohol tax when you consider automobile accidents that affect young people who are then not able to work,” she says.
While they’re drinking, young people are often smoking, and organizations like the ACS have made the case that higher cigarette prices can deter teenagers from developing a smoking habit. Duke University researchers Christopher Carpenter and Phillip J. Cook reviewed national Youth Risk Behavior Surveys from 1991 to 2005, and concluded in 2007: “Our most consistent finding is that—contrary to some recent research—the large state tobacco tax increases of the past 15 years were associated with significant reductions in smoking participation and frequent smoking by youths.”
Gravelle isn’t so sure.
“It is looking less and less like teenage smoking is really affected because many of them don’t buy their own cigarettes,” she says. “They are taking cigarettes off parents or older friends.” Adult smokers may be resistant to tax increases—many continue to smoke about the same amount regardless of cost.
Where smoking was reduced, according to Gravelle and Zimmerman’s research, the reduction represented a loss in tax revenue for the states.
What is certain, says Gravelle, is that a cigarette tax is the second most regressive tax in America. There is only one other tax that takes more of a bite out of the household budgets of the poor: The lottery tax.
Georgia doesn’t tax its lottery tickets, says state economist Ken Heaghney.
“Lottery tickets are exempt from tax,” he says. “The reason for that is, in other states or Canadian provinces where attempts are made to tax lottery tickets, they find there is significant decrease in the number of tickets sold.”
Which is exactly why the ACS wants Georgia to add another dollar to the cigarette tax: to decrease sales.
“We support the legislation because we know that when we increase the price of cigarettes, we can reduce smoking rates among youth and adults,” says Eric Bailey, grassroots manager for the ACS. “Georgia spends $2.25 billion on smoking–related illnesses. That includes more than $530 million in Medicaid.”
After Florida increased its cigarette tax from 34 cents to $1.34, Bailey says, sales decreased by 26 percent. When the tax was 34 cents, Florida collected $138.7 million in cigarette taxes. During that same time period in 2009, July to October, after the $1 was added, Florida collected $408.6 million.
The ACS’s John Daniel says the additional $1 tax will only serve to bring Georgia’s tax more in line with the national average for cigarette taxes.
Dennis Zimmerman, who researched Clinton’s proposed cigarette tax hike—which was not passed by Congress—says he and Gravelle found “smokers were already paying more in state and federal taxes than the cost they imposed on society.”
Controversially, they also found that studies tended to overstate the effects associated with secondhand smoke.
LEGISLATOR LOOKS AT OTHER AVENUES
Zimmerman, now retired and living in Virginia, says there is a moral problem with taxing smokers to offset costs for which they are only partially responsible.
“You are taking revenue from one group of people to provide services to people across the entire spectrum of society,” he says, adding that smokers are usually low-income. “These people are having a hard time paying for the basic necessities. They do not have much disposable income, and it creates hardship for their families to pay more in taxes. What is the justification for taxing people who are having difficulty providing the basics to their families? It will mean they can provide less for their kids.”
Gravelle and Zimmerman based much of their research on the work of Kip Viscusi, then an economist at Harvard University.
“No, smokers don’t impose disproportionate health care costs,” says Viscusi, who is now a professor at Vanderbilt University.
In “From Cash Crop to Cash Cow: How Tobacco Profits State Governments,” Viscusi explains how increased tobacco taxes were intended by the Clintons to help pay for expanded health care. He also refers to the $246 billion lawsuit settlement that major tobacco companies agreed to pay to all 50 states in the ’90s for health care costs associated with their products. Viscusi acknowledges the health consequences of smoking, but he finds fault with how states add up the financial costs.
“The states only want to count the negative side of the cost ledger and ignore the cost savings,” he writes. What are the savings? He says smokers have an 18 to 36 percent chance of dying earlier than they would if they did not smoke, so they are more likely to have a shortened retirement period.
“Because of their shorter expected life spans, cigarette smokers will incur fewer medical costs and pension-related expenses in old age, such as nursing home expenditures and Social Security payments,” he writes.
None of this was mentioned when I spoke with legislators about the proposed cigarette tax increase last week, but Rep. Pat Gardner, a Democrat from Atlanta who is one of the sponsors of the bill, admits she thinks there are some tax issues that take priority over adding onto the price of smokes. For example, she’d like to see the state’s sales tax collection improved before another tax is increased.
“There are a lot of revenues collected by vendors that are not being sent to the state,” she says. “So we need procedures in place to collect [all of] the current taxes.”
She’d also like a thorough review of exemptions, some of which were meant to address temporary needs that have long since passed.
“There are quite a few exemptions under our current tax law that need to be eliminated or reduced,” she says. “There are very industry-specific exemptions. There are some for certain airlines at certain airports on gas. They were put in place three or four years ago and they are still on the books. There are exemptions on the construction of aquariums, which were put in place when the Georgia Aquarium was built. Exemptions up for renewal this year will have a hard time being renewed.”
Nonetheless, the cigarette tax bill has 78 sponsors in addition to Gardner, and they come from both the Democratic and Republican parties.
“We are cautiously optimistic that it will pass this year,” says the Cancer Society’s Bailey.
Rep. Mary Margaret Oliver (D-Decatur), a sponsor of the bill, demurs on that point. “I do not know what, if anything, will be voted on,” she writes in an e-mail to The Sunday Paper. “But, most folks believe the no-tax no-way Republican leadership will not allow any votes on any new taxes.”