Do Cigarette Taxes Help or Hurt Poor Smokers?

Aug. 31, 2007 — -- A new study suggesting that tax hikes on cigarettes may be ineffective in reducing smoking among poor people is drawing fire from tobacco control and public health experts who call the research flawed.

The contentious report comes at a critical time, as Democrats in Congress strive to garner support for expansion of the State Children's Health Insurance Program (SCHIP) by $50 billion over five years. The plan would be funded largely by raising taxes on tobacco products.

In the study published in the current issue of the American Journal of Public Health, lead author Dr. Peter Franks and colleagues at the University of California, Davis, School of Medicine examined smoking among people in various socioeconomic classes over a 20-year period.

The study, funded by the university, found that while price increases historically were met with a concurrent decline in smoking across the board, more recent tax hikes — those occurring after the Master Settlement Agreement (MSA) with tobacco companies and the states in 1998 — corresponded with a trend in which the relatively wealthy quit smoking at a greater rate than their poorer counterparts.

Franks concluded that while tax increases may have helped in the past, that effect has pretty much disappeared. Moreover, he said, further tax hikes would place an undue burden on the poor — those hit the hardest by increased costs.

"There is essentially no effect associated with the increased price of smoking," he said. "Using pricing as a public policy is probably going to be less effective than it has been in the past."

But many tobacco control researchers disagreed with the conclusions of the study.

"I don't quibble with the data, but do with the conclusions," said Kenneth Perkins, professor of psychiatry at the University of Pittsburgh. "It is likely that lower-income smokers decreased their daily amount of smoking, as the authors concede they couldn't assess, thereby showing price sensitivity."

Some in the field pointed to other research that appears to contradict the conclusions of the new study.

"We've been tracking cohorts of smokers for the past 17 years and we see strong price effects," said Michael Cummings, chair of the Department of Health Behavior at Roswell Park Cancer Institute in Buffalo, N.Y.

"There is a large literature on the inverse relationship between price and tobacco consumption," said David Lee, an associate professor in the Department of Epidemiology and Public Health at the University of Miami Miller School of Medicine. "A call for additional research on this relationship in the post-MSA era is appropriate. However, the findings of this study should not be used to justify changes in tobacco control policy."

And some physicians in practice said the findings ran counter to the trends they have seen in their patients.

"The key limitation of this study is that it concerns only the number of smokers, not the number of cigarettes smoked," said Dr. Joseph DiFranza, professor of family medicine and community health at the University of Massachusetts Medical School.

The study's authors defend using total numbers of smokers as the key measure.

"[A]lthough smokers may reduce cigarette consumption in response to cigarette pack price, they may make offsetting health-threatening behavior changes, such as switching to higher tar and nicotine cigarettes. Thus, smoking participation is the key smoking behavior to address," the study concludes.

Counterbalancing Sin Taxes

Rebates and promotions that make up for some of this price increase may also have caused tax hikes to be less effective in encouraging smokers to quit in recent years.

Such rebates lower the impact of tax hikes on the final price of cigarettes, which means that poor smokers may not be hit as hard by price increases as they would be otherwise.

"The author's failure to take into account the price promotion dollars spent by the tobacco industry and alternative low or untaxed cigarette options is a major weakness," said Andrew Hyland, associate member of the Department of Health Behavior at Roswell Park Cancer Institute. "The only conclusion that I can come to from this paper is exactly opposite of the authors — that price has a huge effect and the industry has brilliantly exploited the MSA to minimize the effect of higher prices on smokers."

Lee agreed. "The tobacco industry has responded to the MSA by increasing point of sale marketing and price promotions such as two packs for the price of one," he said. "Industry-reported cigarette cost data has become an increasingly less accurate measure of what smokers are actually paying for cigarettes once price promotions are considered."

Moreover, Perkins noted that many poor smokers may have shifted to less expensive brands or rolled heir own cigarettes, which would have mitigated the financial impact of tax hikes on their habit.

Franks conceded that the study reflected only the average pack prices of cigarettes and did not necessarily take into account rebates and promotions — a factor that could have explained the slowdown in the decreasing number people reporting that they had kicked the habit.

But he added, "I know of no sytemic evidence that the price that was paid was less than the price reported in the study."

Fair for Smokers to Pay for SCHIP?

Regardless of discounts offered by cigarette companies, the fact remains that smokers will be paying extra taxes that go into SCHIP — an arrangement that Franks said burdens the poorer members of a population that is struggling with addiction.

"The only people left smoking are those who are addicted," he said. "What do they do if the price of the drugs they are addicted to increase? Do they stop? No. They cut other things out or find other ways to fund their habit."

He added that using such taxes to pay for a social program such as SCHIP is patently unfair.

"If we think about expanding SCHIP, really shouldn't everyone pay for it?" he said. "Why pick on smokers, who are more and more becoming a poorer segment of society?"

But DiFranza said smokers, too, put a heavy burden on social programs through adherence to their habit.

"Even at current prices, nonsmokers are heavily subsidizing the health-care costs for poor smokers," he said. "If anything is unfair, it is to expect nonsmoking taxpayers to subsidize smoking-related cancer treatments for poor smokers on Medicaid and Medicare."

Franks countered by noting that poor smokers tend to take advantage of health services less often than non-smokers -- and that the decreased life expectancy of smokers usually meant that any medical costs they incurred upon taxpayers would be outweighed by social security taxes they had paid and died too early to collect benefits on.

"I'm not saying that we shouldn't expand SCHIP," Franks said. "I'm just saying that we need to find a better way to do this."

Other Strategies to Stub Out Smoking

If there was any ground on which all researchers agreed, it was that federal, state and local governments should ramp up efforts on several fronts to help decrease smoking rates.

Franks said other measures — such as smoking bans adopted by cities for many public areas — could be a more effective step to curb smoking among the poor. And Cummings added that product bans could also go a long way in stubbing out the problem.

"If the government wanted to get serious about smoking, they would ban the sale of combustion nicotine tobacco products — cigarettes, cigars, bidis, etc.," Cummings said. "There are plenty of noncombustion nicotine substitutes available to satisfy nicotine addicts."