CBO on Cigarette Excise Taxes
June 15, 2012 Leave a comment
CBO has a new report “Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget.”
The study cites some of the work I have done with colleagues, namely our AJPH paper The Effect of Smoking Cessation for Longevity (2002) and The Price of Smoking (2004).
- capstone post (with links) for a 4 part series on the benefits of smoking cessation for longevity.
- capstone post (with links) for a 5 part series on the Cost of Smoking.
One thing to keep straight when asking “what will happen if we increase/decrease a tax” is having a clear counterfactual against which to assess any change (as compared to what?). It is easy to lose sight of what you are trying to accomplish when deciding upon the correct counterfactual with which to judge a potential policy. Further, there can be huge differences between a pure public health perspective (that tends to only look at benefits) and a fiscal one (that focuses on costs). An example of a one-side interpretation of the new CBO report can be found in this post titled “CBO Taxes Backfire”
Increasing the federal excise tax on cigarettes by 50 cents per pack would eventually increase Medicare and Social Security spending, because smokers would be healthier and live longer, according to a Congressional Budget Office report released Wednesday.
The report found that the tax increase would create short-term deficit reductions. However, by 2085, the costs associated with individuals living longer and consuming more Medicare and Social Security services would outweigh the health benefits and tax revenues, causing the deficit to increase slightly.
If all you are interested in is the fiscal impact on the federal budget only, then I guess that is fine. However, as important as the fiscal impacts of any policy are, they cannot answer every important policy question. We need to look at both the benefits and the costs of public policy when deciding what to do.
update: revised and expanded the initial post.