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Tax Hikes Lead to Smoking Decline
> 8/10/2007 11:51:03 AM

Various doctors and scientists have opined for years on the best method to get people to quit smoking. It turns out that government may have had the answer all along. Research discussed in a USA Today article this morning illustrates the fact that one surefire way to get a population to reduce its smoking habit is to raise the price of cigarettes. Writers for the newspaper compiled data on how tax hikes on cigarettes have affected sales over the years. They found that the number of cigarettes sold, and therefore the number of cigarettes consumed, could be directly linked to the cost of the cigarettes. This may seem like information that an Econ 101 student could have come up with, but nicotine addiction is often strong enough to overcome health and monetary disincentives.

This information is not new, as the graph below from the Congressional Budget Office's website illustrates. Cigarette taxes have been used by government to pay for any number of programs over the years. What might be surprising however, is just how large an effect taxation can have. USA Today reports:
Cigarette sales fell 18% in North Carolina last year after the tax was raised in two steps to 35 cents from a nickel. The tobacco-growing state resisted higher cigarette taxes until 2005.
Connecticut has increased its tax to $1.51 from 50 cents per pack in 2002. Since then, per capita consumption of cigarettes has fallen 37%.
New Jersey raised its tax to $2.40 from 80 cents in 2002. Smoking has dropped 35%.
In the final analysis, data from the CBO has determined that for every 10% increase in the price of cigarettes, there will be a 2.5%-5% decrease in smoking.

All this discussion comes in the wake of much debate over a newly proposed national cigarette tax that would offset the cost of expanding healthcare coverage for millions of uninsured American children. As one might expect, the tobacco industry is none too pleased with these most recent legislative manuevers. Pro-tobacco groups have pointed out that lower cigarette sales will mean lost revenue for state governments who rely on money from their own taxes. The trouble is that the lost revenue from smokers leaving the habit behind will likely lead to reduced health care costs for the public. According to the American Lung Association, smoking costs the U.S. over $167 billion a year in health care costs.

While we hesitate to draw conclusions about a complicated bill, for those of us interested in reducing the number of smokers in America, levying a national cigarette tax can be seen as nothing but a positive step by the U.S. We know that an increase in price will create a slackening in demand, and that will translate into fewer smokers and a small health care burden from tobacco's harmful effects.

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