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The Upside of Obama's Tobacco Tax Hike The Upside of Obama's Tobacco Tax Hike

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The Upside of Obama's Tobacco Tax Hike

It could raise revenue, reduce youth smoking, and could fund early childhood education.

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President Kennedy enjoys a smoke at a 1961 Army-Navy game.(AP Photo)

Under his new budget plan, President Obama would use $78 billion from new tobacco taxes to fund early-childhood education. It’s one of the more-notable parts of his proposal and one that The Washington Post's Ezra Klein says is one of its three best ideas. It also turns out that the tax hike could do even more good than Obama’s budget gives it credit for.

The proposal itself alludes, albeit briefly, to the potential upsides of raising tobacco taxes: “Researchers have found that raising taxes on cigarettes significantly reduces consumption, with especially large effects on youth smoking.” But it doesn't explore the nonfiscal consequences much.

 

But the nonpartisan Congressional Budget Office offered a detailed look last June at how a per-pack cigarette-tax hike would affect behavior, public health, spending and revenue. While CBO’s 84-page analysis explored a 50-cent hike from the current $1.01 tax, Obama calls for a 94-cent increase. But the CBO report is still instructive: The agency itself said doubling the tax hike, as Obama nearly would, would yield twice the estimated health effects.

Curbing Youth Smoking. Taxing cigarette packs at $1.51 starting this year would, perhaps unsurprisingly, discourage some new smokers and encourage current smokers to quit. As the White House noted in its budget plan, such a tax would help to rein in youth smoking. That's exactly what CBO found: "By 2021, 4.3 percent fewer 18-to-24-year-olds would be smokers than would be the case under current law,” it reported in June.

Slowing Deaths. The tax hike would also slow the death rate. More than 10,000 people would be living in 2021 who otherwise would have died, CBO estimated. That number would grow to 66,000 by 2035 and 212,000 by 2085.

 

Short-Term Savings. And with more smokers quitting and fewer nonsmokers taking the habit up, federal health care spending would decline. That would, of course, also mean some people would live longer, which would drive up entitlement spending. But, at least in the short term, the government would save some money. From 2013 to 2021, spending would decline by $730 million. Over the longer term, however, the 50-cent hike would increase spending, albeit by just over one tenth of one percentage point of economic output.

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