59 Pages Posted: 11 Oct 2011 Last revised: 22 Sep 2012
Date Written: October 10, 2011
Governments at all levels have significantly increased cigarette taxes in recent years. Under the framework traditionally used by tax policy analysts, these tax increases are justified (1) if they are necessary to force smokers to internalize the harm that smoking causes others or (2) if they are a fair and efficient way to fund the government. But economists have generally concluded that on net, smokers do not impose large costs on third parties. In addition, heavily taxing cigarettes places a significant financial burden on low-income smokers and their families, which raises fairness concerns. As a result, scholars who support cigarette tax increases have begun to rely less on conventional tax policy arguments and to instead invoke novel arguments based on paternalism.
Paternalists argue that people smoke because they are incapacitated by addiction or because they suffer from failures of rationality. Smoking is a mistake, so the government should intervene to save smokers from themselves. And because cigarette taxes reduce smoking, the government should use them as its primary tool in this effort. Moreover, contrary to conventional wisdom, cigarette taxes may actually benefit the poor by encouraging them to give up a habit that reduces their welfare.
This Article challenges the claim that the government should use cigarette taxes for paternalistic purposes. The evidence suggests that most smokers are not incapacitated by addiction. But to the extent that they are, cigarette taxes effectively penalize them for using a product that they find difficult to quit. Additionally, smokers appear to be heterogeneous with respect to rationality. Some people may smoke due to failures of rationality, but for others, smoking appears to be a rational choice. This is problematic because cigarette taxes are a one-size-fits-all solution, and they harm rational smokers. Moreover, many smokers respond to cigarette taxes in dangerous ways. For example, some smokers switch to cigarettes that are higher in tar and nicotine. This allows them to get more tar and nicotine per cigarette smoked. But because high-tar cigarettes pose a greater risk, this response undermines the goal of improving public health. Finally, despite large cigarette tax increases in recent years, the smoking rate among the poor remains high, which suggests that regressivity is still a serious drawback.
Given the many problems with cigarette taxes, the Article recommends that policy makers focus instead on alternatives that can help smokers but that are more suitable for a heterogeneous population and that do not unfairly burden low-income families. The Article examines several proposals that satisfy these criteria, including the commitment contract for smoking cessation and the smoking license.
Keywords: cigarette tax, sin tax, smoking, internalities, hyperbolic, time-inconsistent, optimism bias, paternalism
Suggested Citation: Suggested Citation
Lucas, Jr., Gary, Saving Smokers from Themselves: The Paternalistic Use of Cigarette Taxes (October 10, 2011). University of Cincinnati Law Review, Vol. 80, 2012. Available at SSRN: https://ssrn.com/abstract=1942068