Are High Taxes on Cigarettes Fair?

Taxes influence behavior. If smoking is such a behavior that we wish to influence, then taxes are an important tool for doing so. Unless smoking is something that can be considered with indifference, there can be no plausible reason for not having high taxes on cigarettes. Unfortunately, not even the greatest supporter of human freedom can argue that cigarettes and smoking are a totally private affair. Smoking is often associated with cancers, but as any physician can tell you, it causes a lot more. In fact the most common disease caused by smoking is the chronic obstructive respiratory disease or COPD, which is often called the smokers cough in common expression. It is a permanent cough, often a precursor of infections, and helps in spreading infections around to others as well.

In addition to cancer and respiratory infections, smoking also causes heart disease, and strokes. All these diseases need to be treated at a high cost, and even where the cost is shared through the medical insurance, it is ultimately borne by the society. The treatment and care of any disease requires real resources that are taken out from the economy, and their exclusion has an opportunity cost. The resources that went into treating the cancer patients could have been spent elsewhere creating social welfare in some form or the other had there been no cancer patient. The economy today is so intensely interwoven that every private cost and benefit is borne indirectly by the society.

Thus, smoking creates a cost not only for the person who directly bears its consequences, but for the whole society. Indirectly, and that is not only through passive smoking, we are all affected. For this reason itself, the smokers should pay higher taxes to compensate others. Another reason given in economics for such high taxes is exactly in an opposite dimension of reasoning. The demand for smoking is usually so inelastic that it is economically considered a fit case for higher taxation. The idea is that taxing on smoking can be imposed without any real impact on smoking habits themselves.

Interestingly, the two justifications of higher tax on smoking are mutually contradictory. But then, either way, there is enough justification for high taxes on cigarettes.

0