Guest Opinion: Clearing the air on the cigarette tax

'Cigarette sales dive, hurting health funds" the Nov. 30 Tucson Citizen headline declared. "Anti-smoking program, others affected" the subhead read.

But while these programs, indeed, were affected, their interests likely were helped more than hurt.

Comparing the six months before and after the tax increase of 82 cents per pack was instituted in December 2006, implying a price increase of roughly 15 percent, cigarette sales fell by 31 percent, or twice the rate of the price increase.

The Arizona Tax Research Association took the two changes during the same period to infer that cigarette sales and associated tax revenue losses were because of the tax increase, calling it a bad policy.

USA TODAY found similar patterns for a number of states that raised cigarette taxes.

But these large sales declines had to be because of several factors along with the tax increases, studies by economists indicate.

Such studies consistently show that if the only factor affecting cigarette sales is a price increase, in this case of 15 percent, the decrease in sales would be relatively small, 5 percent to 8 percent, not Arizona's 30 percent decline.

The falling demand couldn't more than offset the revenue-enhancing effects of the tax. Additional factors must have been in play; otherwise the tax increase would have yielded a revenue increase.

One factor to be considered is Arizona's demographics, which include relatively high proportions of younger and minority smoking populations.

These two groups are much more likely than others to avoid or to cut back on smoking in response to price increases.

Even so, their demand decrease, though greater than others, still would not be enough to offset the revenue-enhancing effect of the tax.

So other factors are of interest, particularly the increased effectiveness over time of smoking cessation programs, media campaigns and smoking restrictions in changing attitudes toward smoking.

Another factor is prices elsewhere, as that smokers seek lower-priced cigarettes out-of-state, at Indian casinos and on the Internet, skirting state taxes.

The tax impact on younger and minority groups is a very effective anti-smoking policy to lower long-term costs.

Longtime smokers are nearly unresponsive to a cigarette tax and require more expensive cessation programs.

So a cost-effective policy targets younger people before they become the long-term addicts, and this is what the cigarette tax does.

Also important is that the cigarette tax more than pays for itself. Recent research by the U.S. Centers for Disease Control and Prevention found that each pack of cigarettes costs the smoker and others about $7.20 in annual health care costs and reduced productivity. A broader scope study from Duke University is even more emphatic, estimating that each pack yields costs over the long term for the smoker and the rest of society of about $41 per pack.

Surprisingly, their estimates show that $33 of this cost is borne by the smoker and the rest by the family and others.

And the effect on others would be worse if not for the savings they gain by not having to pay Social Security and Medicare costs for those smokers who don't live long enough to collect.

Given these large cost savings for society, what are the fiscal disadvantages of the cigarette tax?

It's that the savings accrue to many groups, only some of which include those government health-oriented programs that have been subsidized by the tax, and even then, over the long term.

But what's argued here is that eliminating the cigarette tax might make the fiscal problem even worse.