• Taxing things that are bad for us

    I still get an earful for my skepticism that banning, or even taxing, sugar-laden soft drinks will do much to improve our health. In the interest of being fair on this issue, I want to shine a little light on two reports I saw out of the RWJF this morning. The first has to do with taxes on tobacco in NYC, on a study that appeared in PLOS ONE recently:

    Background: To illustrate the burden of high cigarette excise taxes on low-income smokers.

    Methodology/Principal Findings: Using data from the New York and national Adult Tobacco Surveys from 2010–2011, we estimated how smoking prevalence, daily cigarette consumption, and share of annual income spent on cigarettes vary by annual income (less than $30,000; $30,000–$59,999; and more than $60,000). The 2010–2011 sample includes 7,536 adults and 1,294 smokers from New York and 3,777 adults and 748 smokers nationally. Overall, smoking prevalence is lower in New York (16.1%) than nationally (22.2%) and is strongly associated with income in New York and nationally (P<.001). Smoking prevalence ranges from 12.2% to 33.7% nationally and from 10.1% to 24.3% from the highest to lowest income group. In 2010–2011, the lowest income group spent 23.6% of annual household income on cigarettes in New York (up from 11.6% in 2003–2004) and 14.2% nationally. Daily cigarette consumption is not related to income.

    Conclusions/Significance: Although high cigarette taxes are an effective method for reducing cigarette smoking, they can impose a significant financial burden on low-income smokers.

    A few things to note here. From 2003 to 2010, the percentage of adults in NYC who smoke dropped 28%, compared to a drop in the national rate of only 11%. In high school students the drop was 38% in NYC, compared to a national drop of only 17%. It’s also not just taxes; NYC has some of the most restrictive smoking laws in the country. But, they do appear to be working.

    The second is a report from the RWJF themselves, “Does Curbing Tobacco Use Lower Health care Costs?”:

    • Tobacco use is the leading cause of preventable death in the United States and costs the nation $96 billion annually in health care costs and an additional $97 billion in lost productivity.
    • Tobacco prevention and cessation efforts, especially well-funded and comprehensive programs, are proven to reduce tobacco use and lower associated healthcare costs, providing a strong return on investment (ROI).
    • Despite revenue streams from tobacco use and high ROIs, the most successful prevention programs have been cut repeatedly over the past five years.

    I still think there are differences between cigarettes and soft drinks. In the case of the former, smoking tobacco is what we are really targeting. In the case of the latter, what we’re after is sugar, and that nutrient can be obtained in many, many other forms which are ignored. Moreover, what we’re really after is obesity, and maybe we should be thinking that fat consumption has something to do with that, too.

    UPDATE: Commenters are making great points about the second piece. They are points I’ve made before, actually. I’m trying to give voice here to those who disagree with my skepticism. I’m not saying I agree with both of these entirely!

    @aaronecarroll

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    • The fact the the higher NYC taxes caused smoking to decline so dramatically is well worth publicizing, as reduced smoking is itself a good thing.

      But it seems a little misleading to gallop on over to “and saves money.” Has the reduced smoking actually saved NYC any money? Certainly it’s impossible to know yet. The numbers “costs the nation $96 billion annually in health care costs and an additional $97 billion in lost productivity” also seem sort of soft even on a national scale. Wouldn’t all this reduced smoking cause people to live longer and be more likely to develop those really expensive end-of-life illnesses like Alzheimer’s? How about social security, medicare, and pension payouts?

    • Ugh that RWJF brief demonstrates a lack of counterfactual thinking. Smoking causes a lot of death but that doesn’t mean it’s necessarily a big source of health care costs. People who quit smoking (or never start) don’t just live longer and die suddenly and costlessly in their sleep. They die of something and that something is usually expensive. It’s non-trivial to demonstrate that anti-smoking efforts lower healthcare costs, and i’m not convinced by that brief.

    • Interesting final paragraph. Could you one day see food taxed based on the overall content of sugar, and anything else that is known to cause serious health issues (read: increase costs for the rest of us)? Even if such a tax would likely be hugely regressive, as that PLOS ONE study mentions regarding the cigarette tax.

    • There is also this report here:
      http://www.nber.org/papers/w18326

      “Estimates indicate that, for adults, the association between cigarette taxes and either smoking participation or smoking intensity is negative, small and not usually statistically significant. Our evidence suggests that increases in cigarette taxes are associated with small decreases in cigarette consumption and that it will take sizable tax increases, on the order of 100%, to decrease adult smoking by as much as 5%.”

    • From what I can gather, you are implying that high tobacco taxes have played a significant role in reducing smoking behavior in NYC citizens. I like that you are comparing this to taxing sugar-drinks, but I think its hard to draw parallels because the target health problem is linked to more than just one health behavior (drinking soft-drinks). Therefore it’s rather narrow minded to target only one-behavior when a comprehensive approach is needed.

      Also, I find it interesting that NYC citizens spent 23.6% of household income on cigarettes. I find it hard to sympathize with these people, because that in itself should be a HUGE deterrent from the behavior!!!

    • -The argument that we need to tax cigarette makers in order to recoup excess health costs generated by smokers suggests either the actuaries who work for private insurers are *really* terrible at calculating the excess health-related costs associated with smoking, or that the portion of the excess costs that they are failing to capture in higher premiums for smokers don’t manifest until the insured are on Medicare and the public is stuck with the bill.

      An alternative explanation is that private insurers are charging premiums that adequately cover the excess health costs that smokers rack up, and that raising taxes on cigarettes is simply a politically expedient way to increase revenues.

      The actual allocation of the tobacco settlement funds*, and the ongoing allocation of cigarette taxes for purposes other than smoking cessation and dedicated funds to cover the portion of smoker’s excess health costs borne by the state suggests that the latter interpretation isn’t entirely incorrect.

      “This study assesses six states’ allocation decisions for funds from tobacco settlement agreements, using information from newspaper articles and other public sources. State allocation decisions were diverse; substantial shares were allocated to areas other than tobacco control and health, including capital projects and budget shortfalls. The allocations did not reflect the stated goals of the lawsuits leading to the settlements.”
      http://content.healthaffairs.org/content/24/1/220.full