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Tobacco Product Taxes Are Regressive. And Punitive.

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Carl V. Phillips Contributor
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A great deal of harmful nonsense came out of tobacco control’s World Conference on Tobacco or [sic] Health. Some of it was comically ironic, while some was so utterly horrifying that it is easy to overlook anything else. But it is worth highlighting a few details, like the attempt to redefine the concept of regressive taxes. A presentation by Frank Chaloupka, a tobacco controller whose work normally cloaks absurd claims in complicated economic analysis, made the simple absurd assertion that tobacco taxes are not regressive because poor people are more likely to be affected by them. This is nonsensical by any defensible definition of regressive tax. 

Regressive taxation, in this context, means a tax that falls more heavily on the the poor than the rich. Almost every sales tax is regressive since poorer families spend a larger portion of their wealth on consumer goods. This contrasts with most income taxes, where there is an attempt to make them progressive: Those with the least income pay nothing and the tax percentage increases with income. Sales tax is even more regressive when applied to just one product category where the total quantity someone buys does not vary much based on wealth, as with tobacco product taxes. Basing the tax on volume (per-pack or per-milliliter) rather than ad valorem (a percentage of the price of the product) is more regressive still. 

Some technical definitions of regressive tax require a higher tax rate for for low incomes, as with the U.S. payroll (social security) tax, which is a flat percentage for all income up to a cap and then drops to zero. More often, the phrase refers to the burden the tax imposes. The social security tax would still be regressive even without the cap because an “equal” tax is much more of a burden for the poor than the rich. For some people, the cost of tobacco product taxes means having to forgo remodeling the kitchen, while for others it means not even being able to replace the broken microwave.

While the exact meaning of the term varies, tobacco product taxes are regressive by any remotely defensible definition. So naturally, tobacco controllers decided to propose an indefensible definition that renders the concept meaningless.

Their game is to claim that because poorer people suffer a greater burden from the taxes (because they are regressive!), they are are more likely to be forced to quit smoking. Like most Drug War measures, these taxes hurt poor people while the rich can just shrug them off. Thus the people bludgeoned into quitting smoking are poorer. Quitting improves their health and as a result so, the claim goes, their lifetime income will increase.

And thus, as so often happens, an oppressive burden on poor people is spun as a benefit to them. Indenturing underemployed people and relocating them to work camps where there is a labor shortage could also increase their lifetime income. But for some reason that might not be considered progressive.

The claim is technically incorrect. “Regressive tax” refers to the structure of the tax itself, without considering its other effects. Under the proposed redefinition, almost no tax would be regressive. U.S. payroll tax is the standard example of a regressive tax, but poorer people benefit much more from the programs the tax funds (retirement income, disability insurance, Medicare). Most of what the government spends tax money on (with some notable exceptions) provides greater benefits for the poor than the rich.

Even setting that aside, the claim could only apply to cigarette taxes, and not “tobacco taxes” as stated, since there are no apparent health benefits from quitting snus or vapor products. The quantitative claim depends on the details of the calculation, and the figures for the supposed increase in lifetime income are quite dodgy. Most amusing, there is a fatal flaw in the logic: Anyone who gets the benefits is not paying the taxes, while those who pay the taxes are not getting the benefits. So even under Chaloupka’s abuse of the term, the taxes remain regressive.

The real problem here is far worse than word games. Tobacco controllers claim to “help” people (that is the word they invariably use) by imposing high taxes. People are not helped by making one option worse (in this case, more expensive), while making no option better. The untaxed option (not using the products) was always available. If someone did not choose it, then it must have been been worse for him, all things considered. If his currently preferred option is made worse to the point that the other option is chosen instead, he has thus been harmed.

There are rare exceptions to this logic, usually when someone cannot understand all the costs and benefits. A young child running out into a parking lot is making an inferior choice, all things considered, but the consequences are hard for her to fathom. So we create artificial consequences to alter the behavior. But every literate person understands the consequences of tobacco product use, and indeed almost always overestimates them, so this justification does not apply

Creating artificial consequences is called “punishment,” and that is what tobacco product taxes really are. We should always refer to them as “punitive taxes.” Tobacco controllers protest this phrasing, typically claiming “it is not punitive, it just a way of raising the cost to encourage them to stop doing it,” apparently not realizing that they have just defined punishment.

At least that is honest. Their other protest is that the taxes pay for the extra costs smoking imposes on society. (How this could possibly justify taxing other products is anyone’s guess.) But the extra costs are a myth. The claim is based on incorrect analyses by the likes of Chaloupka, that make it appear that smokers have much higher medical costs. The details are a topic for another day, but the reality is that smokers’ lifetime medical costs are about the same as those of nonsmokers. Meanwhile the reduction in their other lifetime consumption (due to living fewer years on pension) creates a large net cost savings, even greater than the supposed increase in medical costs.

The “paying for their extra costs” claim is just political cover and fodder for tobacco control’s useful idiots. Their real goal is inflicting punishment, which serves not only to create incentives but as retribution. Tobacco controllers despise smokers for defying them. They hate vapers and other product switchers even more, since they did not merely slip into a habit, but made an affirmative choice to defy tobacco control’s diktats. A meeting like WCTOH and basically every other tobacco control meeting — all about imposing change on people that those people do not want — is not a humanitarian effort. It is a war council. As such, we should recognize that claims about human rights, helping people, and taxes not being regressive are rationalizations, not motivations. They are merely concocting excuses for their acts of aggression, which they were already engaged in before they created the excuse.

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Carl V. Phillips