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Who Bears the Ancillary Cost of Tobacco Use?

2 min readBy: Patrick Fleenor

Download Background Paper No. 36

Background Paper No. 36

Executive Summary

Smoking appears to be a very risky behavior. Indeed, some have suggested that it is one of the riskiest activities that an individual can engage in over a lifetime. This view is reinforced repeatedly in Americans’ daily lives, from ads on television to the Surgeon General’s warning on cigarette packs.

Yet despite the deluge of information about the hazards of smoking, smoking has not diminished markedly since 1990. Today, approximately 50 million American adults, or roughly one quarter of the adult population, smoke cigarettes. According to data from the Centers for Disease Control, the percentage of Americans who choose to smoke has remained essentially unchanged since 1990.

While many nonsmokers can not fathom the benefits of smoking, we know that smokers freely exchange hundreds of billions of dollars of value each year for the opportunity to smoke cigarettes.

Not content to recite evidence that smoking harms individuals’ health, governments and anti-smoking groups have tried to make a public finance argument that smoking inflicts costs on nonsmokers. Principally, these costs are alleged to be the expense of treating smoking-related diseases and the lost productivity attributable to smoking.

But despite the portrayal of smokers as individuals who are imposing tremendous costs on the rest of society, there is actually very little evidence to suggest that this is the case. Rather, the bulk of the public finance literature points in the opposite direction.

Not only do smokers bear the individual health costs of tobacco use, but they also bear the burden of current federal and state government fiscal regimes that transfer tens of billions of dollars from smokers to nonsmokers.

Ignoring all of the economic research showing that smokers do not impose net costs on the rest of society, state governments began filing suit against the tobacco industry in 1994. Rather than take its chances in court, the industry settled with four states individually for $36.8 billion. The remaining suits were settled for $206.0 billion in late 1998. These payments have only increased the transfer of wealth from smokers to nonsmokers. In September 1999, the federal government filed suit against the industry, and if successful this suit would further exacerbate the existing wealth transfer.