Tobacco Documents Online

D2 ~ Economic Scene Smoking's economic cost isn't a good argument for higher taxes. L AST week the Centers for Disease Control in Atlanta confirmed what few had doubted. Smoking-related diseases have "an enor- mous economic impact; " wrote the editors of the centers' Weekly Report - the equivalent, they estimated, of $2 a pack in medical costs alone. But the agency was careful not to link these remarkable numbers to the case for higher ciga- rette taxes, and perhaps wisely so: Few econo- mists are convinced that the link is strong enough to bear the weight of the argument. For while the total costs of smoking are undoubtedly humun- gous, said Joseph Newhouse, an economist at Har- vard, most are borne by the smokers themselves. "You just can't justify higher taxes on cigarettes by the damage done by cigarettes to nonsmokers; " he said. This latest Government report is by all accounts based on careful research. Sufficient data collected' from some 35,000 adults allowed statisticians to untangle the effects of smoking from the myriad other influences on health: age, race, income, insurance coverage, education, obesity, even will- ingness to take risks as evidenced by seat belt use. When refigured at 1993 prices, estimated medical bills for smokers came to $50 billion a year, or $2.06 a pack. The costs borne by the public - mostly Medicaid and Medicare - came to 89 cents a pack. That latter number is likely to figure in a suit by the State of Florida, which is attempting to recover medical outlays for treating smokers from the cigarette makers. And it is bound to turn heads among those looking for a palatable way to pay for health care reform. For as anyone who suffered through Econ 101 knows, taxes that offset "exter- nalities" - costs that aren't covered in prices - actually increase the efficiency of markets. The catch here is that a full accounting must also Peter Passell THE NEW YORK TIMES, THURSDAY, JULY 14, 1994 include the savings from smoking. Yes, savings: the reduced cost of private pensions, Social Securi- ty and nursing home care for smokers who die before their time. And probably the most complete estimate of the "benefits" as well as the costs was made in 1989 by a group of scholars under the auspices of the RAND Corporation. The study, led by Willard Manning and published in the Journal of the American Medical Associa- tion, put the costs not borne by smokers them- selves at about 15 cents a pack. Medical bills for smokers and nonsmokers alike have since risen sharply. So have estimates of the costs of passive smoking - a classic case of a cost not borne by the buyer or seller. And even these newer estimates, said Ken Warner, an economist at the University of Michigan's School of Public Health, neglect the nuisance cost of coping with other people's smoke. But by the same token, the avoided costs on the pensions and nursing home fees of smokers have risen, too. And Mr. Newhouse, one of the authors of the RAND study, argues that the conceivable mag- nitude of passive smoking is unlikely to exceed a few cents a pack. Hence it should not be surprising that Jane Gravelle and Dennis Zimmerman, econ- omists at the Congressional Research Service, concluded that nonsmokerst costs of smoking were "too small to justify either current cigarette taxes (averaging 50 cents a pack) or the proposed tax increase." That is not the end of the argument, however. "We are not talking about widgets," Mr. Warner said. "We're talking about an addiction formed in childhood" - an addiction most smokers later' come to regret. Thus the idea that the only justifi- cation for limiting the right to smoke is nonsmok- ers' costs seems strained. Indeed, Mr. Newhouse sees a case for cigarette taxes unrelated to the harm suffered by others. A fat tax increaase, he said, might deter young smok- ers - a group inclined to puff first and think later.. Yet it would have relatively little effect on the, habits of older smokers, and would thus not distort free choice. This latter point does not sit well with Mr. Zimmerman. Smokers, he notes, are on average poorer than nonsmokers. Hence, while the tax might not change consumption by confirmed ad- dicts very much, it would certainly burden people who already bear more than their share of life's economic woes. What, then, would Mr. Zimmerman do to prevent teen-agers from being hooked by Joe Camel? "if we were really serious about it," he says, "we'd stop sales of cigarettes from vending machines" . where children have access. In general, he argues, "the biggest payoff at the lowest cost" would come through tough enforcement of laws against under- age smoking. • • 0 It is easy to understand why economists are not rushing to correct the impression that smokers are a burden to society. Most, after all, would like to combat addiction among teen-agers, and most would like to find a popular way to finance broader health care coverage. In the end, though, one still has to wonder whether the ends justify the means. More pointed- ly, one might wonder whether the majority of Americans' enthusiasm for better health is so shallow that they would buy it only if a minority (smokers) is forced to foot the bill.