Does Cigarette Smoking Cost Society Money?

Great Debates
1

This thread digressed a bit into the ‘externalities’ of cigarette smoking, and the notion that we all pay for the cost of cigarette-smoking related health issues, therefore we have a right to restrict smoking.

Rather than continue to hijack that thread, I thought I’d start a new one. What exactly is the evidence that cigarette smoking costs society money? Forget the arguments about children losing their parents, etc. I want to talk strictly finances. Does cigarette smoking cost the government money?

I’ve seen studies that indicate it does, but these studies invariably seem to consider only the costs of smoking-related medical treatments, and don’t factor in the additional costs to society if people stop smoking, and therefore live longer while drawing Social Security and using medicare to pay for untold age-related illnesses.

I found one study by the admittedly-biased taxfoundation.org which attempts to quantify some of this. They even account for the fact that age-related illnesses occur later, and therefore have to be discounted. Their conclusion was that for the historical average discount rate of 3% or less, there is a net wealth transfer from smokers to non-smokers, before cigarette taxes are included in the mix. Primarily because a good percentage of people who die from cigarette smoking pay their own medical bills either directly or through private insurance, while people who live into old age are primarily state supported. So if you pay your own medical bills, then die before retirement, the state gets to keep all that SS and save all those medicare bills, and therefore benefits from you having smoked.

A 1994 study concluded that if you include the excise taxes on cigarettes, there was a net wealth transfer from smokers to non-smokers of between 17 and 24 billion dollars. This would suggest that smoking is actually a positive externality on society.

Another study looking at state finances concluded that states actually gain 2.1 billion dollars a year before excise taxes are considered, and if you include taxes states benefit from smokers to the tune of about 10 billion a year.

Another study, funded by Phillip Morris (another admittedly biased source) on behalf of the Czech government, found that the net financial result of smoking resulted in savings for the state. This was the basic breakdown:

In addition, every study I’ve seen, including this one, counts ‘lost income tax’ as a cost of smoking. Is that really fair? If so, shouldn’t people be taxed for quitting their jobs or taking early retirement?

My position is that at best, the costs of smoking to society are hard to determine and it’s by no means a given that there is a net burden to society - especially if you don’t include things like lost income tax. And therefore, other than second-hand smoke concerns, the state should have no interest in restricting or taxing the private smoking habits of people.

Comments?

2

(my bolding)

I agree with the bolded part. Certainly, the net financial effects of such a widespread social phenomenon become pretty impossible to determine. Another question might be what would people do with the millions upon millions that are spent on cigarettes each year. Probably spend them on hookers and blow, if you ask me.

However, it is possible to gague short term costs/gains within the context of a smoking society.

IOW, I don’t think it’s fair to say that because we don’t know what a totally smoke-free economy would look like that we can’t look at today and say, “gee, a lot of people are in hospitals for lung cancer,” and tax accordingly.

3

Well, if you add up the hedonic benefits of smoking, that are experienced by very few people, i.e. relaxation once in awhile or the pleasure of injecting a drug into yourself once or twice a month, I’d say they are vastly outweighed by the addiction and health debilitations that come from smoking (and I’m not just talking about the deadly stuff – having a lack of breath and smokers smell means that most people would have been better off without smoking even before they eventually succumb to it.)

Which is not to say that people don’t have a right to put what they want in their bodies, it’s just that, even compared to other drugs, the economy, as a sum of the hedonic utility of the choices to consume and not consume tobacco, as a whole would be better if we dedicated less resources to tobacco and more to, well, whatever you’d do instead of growing tobacco.

But the societal changes that would have to take place in order to enforce this change would not be worth it, and would likely lead to an even worse outcome, such as a prohibition-level enforcement.

4

Which question is it you want to ask? The first question, I would translate as, “Does smoking reduce the Gross Domestic Product?” The second, “What is the impact of smoking on government surplus or deficit?” They may have different answers.

5

It’s awfully slippery slope to start arguing on “what’s best for society” when describing individual, personal habits and preferences - all manner of statist nonsense will be foisted on everyone in this line of thinking.

6

Without reference to the thread in question, the idea that the economic cost to society is the driving force behind efforts to restrict smoking is a strawman. The major push behind efforts to curtail smoking in public, for instance, has its genesis in the realization that secondhand smoke has serious health consequences.

As to cost, one can find studies that cut both ways, depending on how eager one is to glom on to “research” funded by the likes of Philip Morris. Here’s one study concluding that the social costs of smoking far exceed those due to illegal drugs and drinking:

“The financial impact of tobacco and alcohol far outweigh the impact of illicit drugs, with smoking costing the community almost three times as much as any other category of drug, according to a study on the social costs of drug misuse in Australia.
The report, produced for the federal government’s national drug strategy, estimates that tobacco accounted for 61.2% of the costs to society of drugs, or $A21bn (£7.6bn; $12.4bn; €11.5bn). For the first time the cost calculations included an estimate of the impact of passive smoking, particularly on the unborn child and children under 14. It also included data to assess the effect of all three substances (tobacco, illicit drugs, and alcohol) on absenteeism, ambulance use, fires, crime, and even litter.”

I suspect that many in the smokers’ rights crowd overemphasize early mortality from smoking-related cancers in calculating a societal cost benefit (damn, but it’s weird seeing Philip Morris make that argument with a straight face). The reality I see daily is a horde of chronic illnesses (including coronary artery disease and chronic obstructive pulmonary disease) which people can live with for a long time, but which cost society heavily in terms of treatment and repeated hospitalizations.

7

Dying of COPD sucks.

Having statistically large numbers of folks dying of COPD sucks even more. So, outside of the overwhelmingly more important aspect of monetary gains and losses, smoking causes lots of suck.

Government intervention into private matters sucks even worse than dying of COPD.

Stupid always hurts, eventually.

But, eventually, the international courts will decide that if our courts feel that tobacco industries owe our states money, they certainly must owe foreign countries far more money, since after we put legal barriers against tobacco marketing in the US, they went to the third world big time.

Going broke as a nation will suck, too.

Tris

8

If you’re collecting them, here’s another report about a study in Ireland. It makes sense to me, dying from smoking related diseases is usually faster than most causes.

There may even be an evolutionary advantage to it. If you die at the age of 50, leaving your children a pile of money you never had time to spend, they may have children earlier, and more of them than they would have had without the windfall.

9

We’re talking about externalities. Tobacco taxes and prohibitions are generally justified three different ways:

  1. Tobacco use is bad in general, and therefore we’re going to punish people for smoking.

  2. Second hand smoke injures other people. Therefore, you should not be able to smoke around others.

  3. Smoking costs taxpayers money because smokers use proportionally more health care resources. Therefore, we have a right to tax smokers to recoup the costs.

I utterly reject #1, as the government has no business deciding how I should live my life. People do lots of stupid and risky things, and I don’t want government injecting itself in my affairs like that. And if you accept that rationale, then how would you argue against government banning other risky activities?

#2 is covered by laws that prohibit smoking in enclosed spaces where there are non-smokers.

I’m addressing argument #3. Are smokers putting a financial burden on everyone else? If smoking were banned today, would my lifetime tax burden go up or down? Do smokers owe me anything?

Anti-smoking activists seem to realize that this is a powerful argument, as even free-market types agree that negative externalities should be compensated. So great effort is expended to show that smokers cost the government money, which they then have to tax everyone to pay. However, the studies I’ve looked at seem to count just about everything they can as a ‘cost’, while undercounting the ‘savings’ of smokers.

For example, here’s a commonly cited report from the Government of Canada, which ‘proves’ that smoking costs society: The Cost of Smoking in Canada, 1991. The study concludes that smoking costs ‘society’ 15 billion dollars a year, and has been used to justify higher tobacco taxes.

However, to get that figure, the study adds in the cost of worker absenteeism and lost future income due to premature death. I fail to see how either of these are relevant - absenteeism is not an externality, because it is part of the agreement between employers and employees. And if we’re going to count lost income as a cost to society, then I’m afraid we’d better tax anyone who gets an arts degree, because they could have made much more (and paid more tax) had they gone into engineering or medicine. And early retirement would also have to be taxed.

On the ‘savings’ side, the study omits the savings from not having to pay Social Insurance and old-age pensions, which seems to me to be a major omission. If you’re going to count the cost of lost income tax, how can you not count the savings of not having to pay retirement benefits?

The study also counts fires attributable to smoking as a cost, even though residential fire damage is paid for by private fire insurance, and therefore not an externality at all. In addition, smokers pay higher premiums for fire insurance, and the study does not factor that in at all.

Finally, to figure out lost income due to premature death and absenteeism, the study uses the Canadian average salary, which is wrong since smokers are much more prevalent in the lower income classes. No attempt was made to correct for the demographics of smokers.

Even with all these biases, they found that smokers cost 15 billion a year, but over 12 billion of that was in was in ‘lost income’. Smokers also paid 7.8 billion in excise taxes (since then, taxes have gone up dramatically). That means that smokers are actually reimbursing the government to the tune of 4.8 billion dollars for income they didn’t earn. That’s the only group of people I can think of who pay extra tax for making less money.

How is that even remotely fair? And isn’t this the absolute opposite of what progressives stand for? If you make choices that cause you to earn less money, we’ll increase your taxes?

10

Yeah, but where are the ones you don’t see? They’re taking dirt naps. It may have improved since they put those automatic defibrillators on practically every vertical surface, but in the old days half the time the first symptom of heart disease was death. You see the small percentage that lingers because they’re hanging around dying slow, but miss the larger number that dies within six months of diagnosis.

11

They almost certainly do. Smoking has enormous costs on society even before you start considering government-subsidized health care.

When I, as a healthy person, pay for private health insurance, I’m not so much paying for my possible future treatment, as I am paying for every current sick person covered by the insurer. Less sick people means that the insurers pay less per covered individual, and could afford to offer their policies for less. In addition, the more sick people we have, the more demand we place on medicines, hospital facilities, and medical professionals, raising the cost of healthcare.

Sick people means lost productivity. Employers loose out when their employees can’t work because they’re sick (or dead). They can make up for this loss by cutting into their bottom line (hurting their stockholders), charging more for their product (hurting consumers), or paying their remaining employees less. More than likely, they go with a combination of all three. In any case, somebody’s losing money

Now, I suppose it’s possible that the tobacco industry itself generates enough revenue, along with the medical field and funeral industries, to make up the difference. But I doubt it.

12

Here’s an abstract of a peer-reviewed study in the New England Journal of Medicine:

The Health Care Costs of Smoking. From the abstract:

Here’s a study from the Congressional Research Service in 1994. This study also considered the cost of absenteeism and lost income. Even so, they found that the midrange estimate for the societal cost of smoking was 33 cents per pack, and the low range of the estimate showed that smokers are actually subsidizing non-smokers by dying before using their pensions and medicare.

13

Not quite. Insurance companies charge different amounts depending on factors specific to you, one of which is whether or not you smoke. You are basically paying an amount that reflects the odds of someone in your demographic needing medical care.

Sam: That might be a better way to get at the answer indirectly. What is the difference that insurance companies charge smokers vs non-smokers over the course of their lifetimes. In the US you’d have to take into account that the elderly often go off private insurance when they’re eligible for MediCare. Insurance companies have really good actuaries to figure stuff like this out-- folks who are going to cut through the political arguments and get at the real answer in $$.

14

If you’re a smoker with private insurance, you’re paying extra premiums to cover the health risk of smoking.

And if we’re going to consider ‘lost productivity’ as a reason to stop people from smoking, then I guess we should stop people from studying art, or retiring early, or choosing a low-paying career so they can spend time with their families. You really want to go down that path?

15

Well, goody…but this strikes me as yet another strawman, unless you can furnish evidence that any antismoking regulations are predicated on the “sin” aspect.

And of course no business losses are ever passed on to the public at large. :rolleyes: Who are we kidding here? And if in fact premature death of smokers robs society of money (including funding for social services) and useful skills, that is a societal cost that can legitimately figure into calculations. We could go off into innumerable tangents on this score, but I don’t see how terribly relevant they are to the societal cost of smoking.

Again, this blithely assumes that the costs of smoking-related fires are entirely assumed by smokers and that others are completely shielded from having to pay more for insurance, firefighting and other ancillary costs.

16

Cigarette smoking contributes billions to the economy annually.

17

By far the most expensive thing we can do is keep our population healthy and living longer. This is because people who are healthy and live longer wear out slowly and the wearing-out process requires expensive intervention during the years they are non-productive (economically speaking).

There is no upper limit to what we will pay for longevity and healthcare. New joints; new valves; new vessels; new organs; 24/7 care for the healthy demented–the list goes on endlessly. And the costs for a relatively healthy person to die slowly over a long period of time are astronomical.

I have long argued along the lines of the NEJM article referenced above, and the argument applies not only to smoking but to all of the other “healthy” interventions–they are a short-term savings, but to the extent that they produce a retired population consuming healthcare dollars with an unlimited appetite for repair and longevity, they are a net cost.

This is not an argument for or against smoking or smoking taxes, but as a physician I tend to smile at the notion that a healthy population is going to be a cheaper one up until the time that we actually cure aging itself.

The cheapest individual is the productive smoker who gets to 65 and drops dead suddenly. The most expensive individual is the one who wears out over a period of 35 years post-retirement.

18

You’re thinking about it backwards.

Think of all the Tobacco farmers, all the people employed in the production, transportation, and sale of cigarettes. All of that costs society in terms of opportunity cost, and the product is just burned up into nothing. Think of all the useful work they could be doing if they weren’t wasting their time and resources producing a non-productive good.

If I paid a guy $10 to dig a hole and then fill it in, I haven’t added anything to the economy. It’s just a sunk cost. It’s pretty much the same if I pay some guy $3.50 a pack to plant a crop and then I set fire to it.

Of course, since there’s a demand for burning up those plants, it may well be that prohibiting growing tobacco would cost society more than just growing and burning it.

19

Well then I hope you are not wasting society’s productive capability with popsicles.

20

Wow, listen to all the social engineering! “Smoking costs society because it’s a non-productive use of resources!”. “Smoking costs society because smokers die when they could be contributing more money to taxes!”

If you use either of those arguments to justify state intervention into smoking, why couldn’t you use the same arguments to ban, say, extreme sports? Or watching entertainment on TV? Or organized sports? Or any number of things that aren’t ‘productive’ but which we spend billions of dollars on?

And if you’re going to single out smoking as an activity that needs to be punished because smokers don’t earn as much as they would if they didn’t smoke, what would you say to someone who uses the same argument to limit vacations? Or to mandate that children must be put in day care so both parents can work and ‘contribute’ to society? Or to tax ‘non-productive’ university educations to steer people into careers that are more beneficial to society?

For that matter, if lower worker productivity is something that should be within the realm of the government to tax, then why are we giving benefits to poor people? Shouldn’t we be making their lives harder to give them more incentive to find more productive work? That’s exactly what we’re doing to smokers.
Think long and hard about it. See if your rationale actually makes sense and is consistent with your other moral beliefs, or whether you’ve just picked up an easy argument to justify stopping someone that you want stopped.

Every time a minority has been oppressed in the past, people had arguments like these to justify it.

And if you think you have the right to impose rules on people that force them to live healthier, how can you possibly justify going after smokers when heart disease and stroke are the #1 and #3 killers of Americans, and yet Americans are allowed to sit on their fat asses and watch TV all night long while munching potato chips and drinking Coke? Why shouldn’t that activity be taxed or even banned? Or maybe the BMI recommendations should be made law, and we all have to go in for a ‘government weigh-in’ each year. Any weight over your healthy ideal weight is taxed.

I think $20/lb is about right. If you’re 50 lbs overweight, after your government weigh-in you get a bill for $1000, to cover the costs of your extra health care requirements. Think how much healthier society would be if we did that! Why, we can socially engineer a utopia, with just the right set of taxes applied to the people who need coercing.

Here’s the reality: Decades of propaganda has convinced us that smoking is a dirty, filthy habit that poisons the air, kills us with second-hand smoke, and costs society billions of dollars. Tobacco manufacturers are evil and no better than drug pushers. Therefore, we are totally justified in punishing smokers and the industry that supports them any way we see fit, and we’ll latch on to any ‘study’ that gives us a fig leaf to cover our abuses of smoker’s rights.

Lost in the vitriol and do-gooding is that some people actually know the risks and still enjoy smoking. They’d like to keep smoking. These people are generally of below-average income in the first place, and the additional tax burden we’ve dumped on them is a major hardship. Their freedom is stripped away from them. By forcing them to spend a significant chunk of their income on their cigarettes, we also limit their ability to save and move out of poverty. How nice.