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-sided interpretation of the new CBO report can be found in this post titled “Cigarette 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, 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.
(cross posted at freeforall)
I’m so glad that the computer modeling community can predict the response to a nominal-currency excise tax by generations of smoker who haven’t been born yet, and that global economic and health conditions will remain stable enough to avoid any possible confounders.
Computer models don’t claim perfect predictive powers, Paul. Moreover, models are adjusted as more data comes in. Hence the terms: models, predictions. Or perhaps you would like us to blunder into the future as defined by chicken guts, astrologers and random citations from Deuteronomy?
Chicken guts were good enough for my great-grandfather. (Carrier pigeons, as a matter of fact, but inapplicable here)
My point is rather that when you have largish uncertainties in elasticity, health outcomes, and healthcare costs (and you do), plus additional large uncertainties about the laws underlying both medicare and social security, saying something about the effect on the budget at a time when almost the entire current population of smokers will be dead (and, conversely the then-present population of serious interest has yet to be born by about 20 years) is an exercise in futility. Taking differences between very large numbers is the poster child for exploding error bars.
We also need, more often, to subject claims that this or that “will pay for itself” to derisive laughter.
Well, you’ve just ruled the entire Ryan budget out of court, that’s for sure. Also, supply-side economics. Does Uncle Grover know that you’ve apostasized?
Nah, the idea that cuts will pay for themselves is pretty much tautological; The notion is only problematic when you’re spending money on something under the pretense that it will save you in the long run.
When you hear that from a politician, cue the sneers. Maybe not so much from an auto mechanic.
“cuts will pay for themselves is pretty much tautological”
No, it’s gibbering nonsense that only the innumerate would believe. I realize that you have no actual ideas and even less to offer in the way of argument, so perhaps you could find a home where no-one wants to have a constructive discussion of issues of national importance? I hear the Daily Caller is recruiting persons with your particular “talents”, or you could try Red State or Michelle Malkin’s cyber-dungheap.
“When you hear that from a politician, cue the sneers. Maybe not so much from an auto mechanic.”
What happens when government-owned vehicles need servicing? Does the universe disappear in a puff of logic?
Oh, come on! Seriously, how often do you hear a politician say, “Really, we should spend the money to regularly change oil in our public vehicles like fire trucks. In the long run it will save money!”
No, it’s usually a phrase you hear when somebody’s proposing some hugely expensive public works program, or something of that nature, where it’s not immediately obvious that there will be savings, because the ‘savings’ only come after a long chain of contingent events.
So in essence by failing to discourage smoking we get smokers to die before they get SS and Medicare, saving “The Guverment” money but shifting the gargantuan cost of their health care onto private insurance (except when they are on Medicaid) thereby jacking up insurance premiums. How much money does it cost before a smoker dies of lung cancer?
On the up side 7-11s make a good profit on all those cigarette sales. And think of all the coffee and donuts those guys buy when they stop to score their fix.
Then again, how does this all affect the hit on widows and orphans benefits?
How much money does it cost before a smoker dies of lung cancer?
Substantially less than if he dies of senile dementia.
The idea that longer life and decreased illness constitute a downside shows how bankrupt a mode of thought standard economics is.
The idea that, just because something has a positive side to it, you can ignore any negatives associated with it, shows how bankrupt liberal economics is.