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Will Paying People Not to Smoke Save Money?


Demian Brady
October 31, 2011

Over the past several decades, the federal government and several state governments have been raising tobacco tax. The stated goal is to reduce demand for cigarettes and tobacco-related products. But everyone knows (or should know!) that governments are just as addicted to tax receipts as smokers are to tobacco. The ultimate goal of the hikes has been to raise revenues. And since cigarettes are politically incorrect, they provide a convenient cover for enacting higher taxes.

But then governments started noticing an unintended consequence of the higher tax rates: smugglers realized that they could make a profit purchasing cigarettes in low-tax states and shipping them to high-tax states for re-sale. So then taxpayers had to spend more on anti-smuggling enforcement efforts in order to “save” the loss of taxpayer receipts.

Now there is a new twist to the anti-tobacco effort. Connecticut is the recipient of a $10 million federal grant to pay certain Medicaid-eligible people not to smoke and to attend anti-smoking classes. And all of this will… you guessed it… “save taxpayer dollars.” Or will it? 

 If we have fewer smokers, there will be fewer tax receipts, which is probably part of the reason why most state governments never spent much on anti-tobacco from the billions in payments they received from tobacco companies. The massive payments, agreed to in the resolution of the states’ lawsuit against “big tobacco,” were ostensibly to compensate states for smoking-related health care expenses. Yet, states ended up using the bulk of those funds to shore up their general budgets. And as my former colleague Kristina Rasmussen pointed out, tobacco tax receipts are often tied to specific spending programs and state and governments will have to look to other taxes to fill in the gap as tobacco use declines. 

The next point is perhaps morbid but must be considered in light of the claims that paying people not to smoke will save money. Okay, so if people stop smoking, fewer Medicaid dollars will be spent on smoking-related health treatment. That is logical. But it does not necessarily follow that Medicaid will save money overall: absent cigarettes, individuals will live longer and could potentially end up consuming more health care services than they would have received if smoking had cut their lives short. 

I am very skeptical of claims of these types of efforts to “save” money, especially when you have governments so dependent on the revenue streams. But I do know for sure that we could save $10 million by rescinding this grant to pay people not to smoke.


 

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