The Tragedy of Tobacco and the State: Part 4 – Addicted to Taxes

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Erik Devereux
July 26, 2024

This is the fourth column in a series on the responses of democratic governments to the public health disaster caused by nicotine addiction (first column, second column, third column). There are three key actors on this stage: the nicotine industry the sells the products for profit, the health care industry that relies on nicotine use to generate patients and state and local governments that rely on tax revenues from the sale of nicotine products to fund their budgets. The addiction of governments to nicotine tax revenues has compromised public policy efforts to end tobacco consumption since the conclusive evidence emerged in the 1900s that nicotine addiction kills.

The graph accompanying this column (source) shows total tobacco tax revenues in the United States from 2000 to 2022 and projections out to 2028. The noticeable increase in revenues in 2009 is a consequence of the negotiated settlement between the tobacco industry and state governments supposedly intended to fund programs that would sharply curtail future nicotine use. Keep in mind that across this time frame total cigarette sales continued to decline slowly (albeit at a level far below the peak in the 1960s) while the nicotine vaping industry grew at a frenetic pace. The consequence is that state and local governments are projected to receive a consistent amount of sales tax revenue from nicotine for the foreseeable future.

Many studies have found that the same governments are using those revenues to plug holes in their operating budgets rather than fund prevention and public health programs. On balance, state and local governments continue to support nicotine addiction because without those revenues they would have to make some hard choices about their budgets and tax policies.

To see this process in its most absurd, consider what is happening in New Zealand. The prior government adopted an innovative policy to end nicotine use. Specifically, the policy would make it illegal to sell nicotine products to anyone born starting January 1, 2009 for their entire life, reduce nicotine levels in all products and vastly restrict the number of retailers of nicotine products. The current government moved to derail this policy earlier in 2024. Why? Without those sales tax revenues, the government would have to abandon its tax policy goals. In essence, New Zealand’s government is willing to condemn many more generations of children to a terrible addiction because it cannot find a better way to pay for itself.

Another absurd exercise in compromised governance can be seen in the halting efforts of the U.S Federal Government to impose a ban on flavored nicotine products. The nicotine industry discovered many decades ago that it could expand consumption by masking the noxious flavor of tobacco. The tip of this spear is menthol cigarettes but the industry also has sold a wide range of other flavored products and pioneered flavors for vaping clear aimed at children (example: grape). Recently, the Biden Administration began walking back a proposed ban on menthol in cigarettes despite overwhelming evident that menthol products are marketed directly at African Americans and contribute substantially to the persistent gaps in health and life expectancy between Black and White adults. Why? Out of concerns that Black voters, addicted to menthol cigarettes, would retaliate at the polls in this election year.

The verdict of history about these public policy imbroglios will be harsh. No reputable government, and no reputable system of governance, can rely on substance addiction to provide either votes or tax revenues. Doing so is a direct violation of the obligation of a government to pursue the well-being of its public. As I have intimated above, and directly addressed in prior columns in this series, almost all nicotine addicts initiate use as children. Governments know this. The now-abandoned New Zealand policy was crafted because of the need to prevent children from accessing nicotine products. The verdict of history thus will be about the failures of governments worldwide to protect children from a toxic product of no other purpose than to promote additional sales.

A good friend of mine has a wonderful way of explaining this. “What is the real purpose of a cigarette? To make you want the next one.” From the perspective of the local governments I could craft a similar answer to the question, “What is the real purpose of tobacco taxes?”

So what then is to be done? Many years ago while working at Carnegie Mellon University, I attended a symposium on the success of market-based efforts to reduce sulfur dioxide emissions and curtail “acid rain” damage to the environment. During the Q&A period, an audience member asked the panel to predict what would be the next important innovation in environmental policy. The answer: campaign finance reform. The same applies to the ongoing travails with nicotine in the United States and other democracies. As long as our political systems are so open to influence by highly profitable industries it will be very difficult to protect future generations from dying as a consequence of nicotine addiction or to reform state and local tax policies no longer to rely on those sales tax revenues.

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Author: Erik Devereux will be Associate Teaching Professor in the Department of Public Policy, Management, and Analytics at the University of Illinois-Chicago beginning this August. He has a B.S. from the Massachusetts Institute of Technology (Political Science, 1985) and a Ph.D. from the University of Texas at Austin (Government, 1993). He is the author of Methods of Policy Analysis: Creating, Deploying, and Assessing Theories of Change (available for free here). Email: [email protected]. More content is available here.

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