Why do most cigarette smokers tolerate massive state tax increases?

Commentary about business and finance.
Sept. 8 2010 2:03 PM

Cough It Up

Why do most cigarette smokers tolerate massive state tax increases?

(Continued from Page 1)

More and more people, then, have a theoretical incentive to hit the road for cheaper smokes. In reality, though, not many do. According to one Kennedy School study published in 2008, 40 percent of smokers live within 40 miles of another state, yet only 2 percent travel 40 miles or more to buy cigarettes. The authors conclude that the average smoker "is willing to travel 2.7 miles to save one dollar on a pack of cigarettes." For most people, the savings aren't worth more than a few minutes in the car.

Other tax evasions entail more work and even outright flouting of the law; bootleg cigarettes from the back of a truck, cigarettes purchased from Indian reservations, or from online outlets of varying degrees of reliability. (Evasion methods are getting more clever. The Wall Street Journal reported last week on the increasing popularity of roll-your-own machines at tobacco stores, which allow customers to create cigarettes that are taxed at the federal level as pipe tobacco—one-tenth the rate of cigarette tobacco.)

Obviously, bootlegging is real, and every few weeks there are accounts of people being busted for it. As a percentage of overall American smoking activity, however, it seems modest. Reliable statistics on the prevalence of bootlegging are hard to come by, but in the 2003 version of the Census Bureau's Current Population Survey, just 0.8 percent of smokers reported buying cigarettes from the Internet, Indian reservations, or foreign countries (notably Canada). Even if that number has doubled or tripled since then, it's still not a huge portion of the 360 billion or so cigarettes consumed in this country every year.

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Why do smokers tolerate tax hikes that are so out of whack with other price increases? Tax increases actually do cause some smokers (particularly younger ones) to quit and others to smoke less. Some of the taxes get paid by newly minted smokers. Secondly, rising gasoline costs in recent years have rendered useless many would-be road-trip bargain binges. Another factor, I suspect, is the self-image of many smokers. Tobacco-use surveys tell us two interesting things: 1) A majority of smokers at any given moment are thinking about quitting, and 2) 62 percent of smokers buy only packs, not cartons. A huge number of smokers, then, are too timid about their habit to buy enough cigarettes at a time to realize any substantial savings by going outside their normal buying outlets.

A cynical argument, frequently put forward by smokers and libertarians, is that states actually don't want too many smokers to quit, because they need the cigarette-tax revenue. There is some evidence for this. Every cigarette tax passed in recent years has been accompanied by rhetoric about getting people to quit. Yet earlier this year, the Centers for Disease Control found that of the 14 states (plus the District of Columbia) that raised cigarette taxes in 2009, none were using the additional revenue for anti-smoking efforts.

One economist (looking primarily at South Africa) has suggested that the best way to use the cost of cigarettes to get smokers to quit is to focus on affordability rather than just price. And therein, probably, lies the real answer. As punishing as recent cigarettes tax hikes have been, they are not yet so high that most American smokers cannot find a way to pay for them. The question remains: How high would taxes have to go to create a far-reaching economic disincentive?

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