Tobacco Documents Online

hope for accommodating responses across a wide range of issues of long-standing concern to them: • Reducing the pace and scope of Western military com- petition, especially in the high technology areas of Western advantage. • Western agreement to consider further nuclear reduc- tions. • Wider acceptance of the Soviet Union as a full-fledged participant in the world community. • Progressive liberalization of Western political restric- tions on trade, acceptance into international economic organizations, such as the International Monetary Fund and the General Agreement on Tariffs and Trade (GATT), and, ultimately, even Western economic development assistance. Concurrently, the authors say, discussions must go forward on the issues making up the current U.S.-Soviet agenda. Arms Control. A START-like agreement is important on several counts, they observe, but chiefly to keep the existing arms control regime, whose legal basis is now in disarray, from unravelling. NATO's approach to conventional arms control has been complicated by Gorbachev's announcement of unilateral cuts. This makes all the more urgent a high-level NATO di- alogue on how to define Western interests in the new cir- cumstances. Although reopening such security issues risks divisive debate, it is the only way to produce politically vi- able and strategically sensible responses to Soviet proposals. Instability in Eastern Europe. The West must grapple with the dilemma of how to promote self-determination for these countries without triggering a Soviet military intervention that would disrupt Gorbachev's reforms, divide the Western alli- ance on how to respond and threaten the peace of Europe. One avenue of approach is to try in new conventional arms control agreements to devise explicit, contractual inhi- bitions against the cross-border movement of Soviet forces such as occurred in Hungary in 1956, or in Czechoslovakia in 1968. Regional Conflicts. Where U.S. and Soviet interests over- lap, the United States should continue to cooperate in facili- tating the military disengagement of the USSR or its clients from regional conflicts. Afghanistan, Angola and Cambodia are examples. The same political approach and diplomatic style could be extended to Central America (establishing agreed limits on Soviet military aid in the context of a region- al settlement); the Middle East (testing Soviet readiness to move its clients toward settlement of the Arab-Israeli con- flict); the Persian Gulf (arms export limitations and nonin- terference in post-Khomeini Iran); the Korean peninsula and other future hot spots. Bilateral Relations. In economic policy, the United States should try to phase liberalization of trade with indications of substantial change in the structure of East-West relations and in the nature of Soviet society. It may now be appropriate for Washington to end U.S. denial of Soviet access to U.S. government loans and guarantees, while still seeking to minimize the transfer of militarily relevant technology. With continued positive Soviet change, the West might also con- sider agreeing to greater Soviet involvement in international economic organizations. Human Rights. Placing human rights on the official agen- da is an important innovation in U.S.-Soviet relations, giving the West Soviet-sanctioned access to the evolving Soviet domestic scene and to information that will be useful in monitoring and assessing Soviet change. If Soviet human rights performance continues to improve, it will be driven primarily by internal societal pressures. Nonetheless the West exerts enormous influence by the force of its example and it can perhaps nudge the pace of such change by hold- ing Soviet leaders to the highest standards of their new- found commitment to human rights. Although human rights issues play a less immediate role in imperative security considerations, in the long run the condi- tion of human rights in the Soviet Union will determine the upper limits on progress toward a more cooperative, safer world, the report concludes. K Managing U.S.-Soviet Relations in the 1990s, Abraham S. Becker, Arnold L. Horelick, R-3747-RC, January 1989, 56 pp., $7.50. "If economic efficiency is the criterion, alcohol taxes are too low." TAXING 'SIN' SHOULD DRINKERS, SMOKERS PAY MORE? One aim of so-called "sin" taxes is to shift the costs of poor health habits, like smoking and heavy drinking, onto the shoulders of the "sinners." In addition to the price paid by smokers and drinkers, these habits impose costs on others- as in accidents caused by drunk drivers or the damage to non-smokers' lungs from passive smoking. Further, to the extent that abstainers in the population pay higher insurance premiums or payroll taxes because of the higher medical bills of smokers and drinkers, they subsidize those habits. California, in a recent initiative, raised cigarette taxes by 25 cents a pack. Other states and the federal government may be preparing to follow suit, increasing taxes on both to- bacco and alcohol. For these taxes to operate in an economically efficient manner, say the authors of a new RAND study, they must at least equal the actual costs that smokers and drinkers impose on others. The study employs a new method of quantifying these "external" costs and in a conclusion that challenges conven- 3

0.60 0.55 0.50 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.5 0 ® External cost ® Tax Extemal Costs vs. Taxes Paid tional assumptions, says that smokers just about pay their own way at current levels of excise taxes on cigarettes. Taxes on alcohol, by contrast, cover only about half the costs that drinkers impose on the rest of society. Economist Willard Manning, who led the project, elabo- rates: "If economic efficiency is the criterion for determining levels of taxation, then taxes on alcohol are too low. The difference between the actual tax and external costs is so large that, in our view, a strong case can be made for an in- crease in federal alcohol taxes." Taxes as Deterrent? However, he adds, higher cigarette taxes may also be warranted to deter teenagers from taking up the habit. More than 85 percent of smokers become addicted before age 20, a decision many later regret. Manning acknowledges that the findings differ markedly from earlier estimates, which focus on the total costs of smoking and drinking, but argues that the external costs are most relevant in establishing tax rates. The reason, Manning explains, is that although the costs borne by smokers and drinkers and their families from illness and premature death are large, they are presumably taken into account by individuals when they decide to smoke or drink. Short of breaking the law, society generally permits people to do what they want to do, even if it harms them, as long as they pay the full costs of their actions. If it can be shown that they are not paying their full share (the costs of drunk driving or passive smoking, for example), then taxes may be raised accordingly. Important differences between smokers and drinkers ac- count for the fact that the overall external costs of smoking are less than those of excessive drinking. Over their lifetimes, smokers incur more expenses-in medical bills and death benefits-than they pay in taxes and insurance premiums, and to this extent are subsidized by non-smokers. In turn, however, they do not live long enough to collect as much in the way of pension benefits, so the payments they have made to these funds subsidize non- smokers' retirement and nursing home care. The study esti- mates that each pack of cigarettes shortens the smoker's life • by 28 minutes. Drinkers also have shorter life spans than their non- drinking, non-smoking counterparts. Each ounce of alco- hol-in excess of two per day-reduces life expectancy by eight minutes, the study found. However, the disability and mortality patterns of excessive drinkers differ from smokers. A Heavy ToIE in Others' Lives Drinkers tend to take early retirement which triggers pen- sion and disability payments that outweigh the effects of their shorter life spans. Also, a significant proportion of drinkers die young-in automobile accidents, for example- before they have contributed much to retirement and other benefit funds. Finally, drinkers take a heavy toll of others' lives through automobile accidents. In short, the costs smokers pay tend to cancel out the costs they impose on others, but the same cannot be said of drinkers. The authors define four types of external costs: collec- tively financed benefits, such as health, disability and group life insurance, sick leave and pensions; insured property loss from smoking-related fires and drunk driving accidents; loss of life from these accidents; and the alcohol-related costs of the criminal justice system. To clarify the distinction between internal and external costs, the study provides the following hypothetical example of a smoker's medical costs: The smoker has a group health insurance policy that pays 75 percent of his medical bills. Smoking a pack of cigarettes a day raises his medical bills by $6,000. The amount the smoker pays, $1,500 (0.25 x 6000), is an internal cost. Be- cause he does not pay premiums that reflect his higher costs, the remainder-$4,500-is an external cost. Smokers were compared to a hypothetical group of peo- ple who don't smoke but were like smokers in age, sex, edu- cation and other habits. Heavy drinkers, defined as those who report consuming more than two ounces of alcohol a day, were compared with people of similar characteristics who drank less. This method allowed researchers to screen out the cost effects of other health variables-drinking by smokers, for example. Higher Alcohol Taxes Warranted Based on the costs of medical and other work-related benefits, pensions and the taxes on earnings to finance these programs, plus fire damage to property not paid by the smoker, researchers estimated smoking's external cost at 15 cents per pack. That amount is considerably less than the average 37 cents currently levied in state and federal sales and excise taxes. However, when deaths to family members from passive smoking and smoking-related fires were con- sidered, the external cost rose to 38 cents a pack. Unlike tobacco, alcohol showed a dramatic disparity between the estimated external cost of 48 cents per ounce and current average state and federal taxes of 23 cents an ounce. Innocent lives lost to drunk driving were the single biggest component of the total external cost of alcohol abuse. The study points out that a strong rationale exists for rais- ing beer and wine taxes-at the federal level to prevent bootlegging-because they are taxed at a much lower rate than are distilled spirits. Beer is taxed at nine cents per ounce of ethanol, wine at three, and distilled spirits at 25 cents. 4

"Higher beer taxes would make particular sense," Man- ning said, "because it's the drug of choice for teens and young adults who drive when they're drunk." The study was not intended to suggest means for reducing the federal deficit-the objective was to assess whether present tax levels equitably cover each habit's social cost. Still, Manning noted, "a higher alcohol tax would have the additional effect of raising revenues, and would cause less economic distortion than many other taxes." Moderate drinkers might protest that they would unfairly pay a higher tax burden, but researchers countered that if government revenue must be raised, many of these drinkers would be better off with a higher alcohol tax than with cost- lier alternatives such as payroll taxes. Higher alcohol taxes also would be at least partially offset by lower external costs if abuse were deterred. The research team also included Emmett B. Keeler, Joseph P. Newhouse, Elizabeth M. Sloss and Jeffrey Wasser- man. Their work was funded by a grant from the National Center for Health Services Research and Technology Assess- ment. E The Taxes of Sin: Do Smokers and Drinkers Pay Their Way?, Willard G. Manning, Emmett B. Keeler, Joseph P. Newhouse, Elizabeth M. Sloss, Jeffrey Wasserman, N-2941-NCHSR, March 1989, 6 pp., $4. Re- printed by permission from The Journal of the American Medical Asso- ciation, March 17,1989, Vol. 261, No. 11, pp. 1604-1609, © 1989, American Medical Association. NEW LOGISTICS APPROACH COULD EASE ARMY'S HIGH-TECH HEADACHE With the acquisition of the Abrams tank, Bradley fighting vehicle and Apache helicopter, the U.S. Army irrevocably entered the age of high technology, turning away from the simpler weapons that once made up its main battle forces. These advanced armaments-all equipped with highly in- tegrated electronic subsystems-are among the most sophis- ticated in the U.S. arsenal. Now, like its sister services, the Army must learn to cope with the myriad maintenance and repair problems that at- tend these complex weapons-problems that traditional logistics structures were never meant to handle. What is more, the challenge comes at a critical time. i In Europe, NATO faces a conventional force imbalance heavily favoring the Warsaw Pact. This, plus the erosion of NATO's qualitative edge as Soviet weapons begin to equal those of the West, places an exceedingly high premium on the ability of U.S. ground forces to sustain combat in a fast- paced wartime environment where the number and direction of attacks could not be foreseen. A new study from RAND's Army-sponsored Arroyo Center addresses an important aspect of that problem-how the Army can improve the combat availability of the high- technology subsystems at lower costs than conventional logistics approaches allow. The study, led by Morton Ber- man, director of the Center's readiness and sustainability program, draws on concepts, tools and techniques developed at RAND to help the Air Force deal with similar problems. 5

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