The "Social Cost"of Smoking

Numerous "studies" purport to show that smokers are costing "society" amountswhich vary from 22 cents to $4.80 for each pack they smoke. That theestimates vary so widely is already a clue that the authors select datawhich pleases them and ignore the rest.

Apart from accidents, smokers and nonsmokers alike die mostly from heartdisease, cancer and strokes. Smokers just get them sooner, on average. Byliving longer, non-smokers incur more in medical and old age expenses, notless. In addition, smokers' shorter lifespans mean they cost less in SocialSecurity and pensions. Finally, they pay more taxes during their lives.Thus it can be shown that smokers, rather than costing money, actually payinto the system more than they take out.

Stanford economist Timothy Taylor, an anti-smoker, made these points in theSan Jose Mercury News, March 7, 1994, and agrees that tobacco taxation cannotbe justified by the social cost theory.

In a recent paper for the National Bureau of Economic Research, DukeUniversity economist W. Kip Viscusi calculated a net saving to societyof 83 cents per pack.

In 1995, the non-partisan Congressional Research Service updated a 1986Manning study on smoking costs originally published in the Journal of theAmerican Medical Association. The CRS recalculated Manning's 1986 dollarsinto 1995 dollars by using the GNP deflator for some costs and a medicalservices index for others, recognized increased cigarette taxes and addedETS effects. The result: a net saving to society of 15 cents per pack in1986 became 33 cents per pack in 1995.

But what of the Centers for Disease Control's much-publicised figure of$50 billion? A proper economic analysis must include ALL external costs:health care, sick leave, life insurance, nursing care, pension, fires andeffect (if any) of ETS. The CDC arrived at their $50 billion figure asfollows:

EXPENSES
$26.9 billion, hospitals
$15.5 billion, doctors
$4.9 billion, nursing homes
$1.8 billion, prescription drugs
$900 million, home health care

TOTAL
$50 billion

PER PACK
$2.06

TAXPAYER BILL
$21.6 billion, or 89 cents per pack

What is important in this list is what is not there. No mention is made ofoffsetting taxes, nor of social security savings, nor of the extra cost ofold age.

Also, they produced the numbers above not by adding up what was actuallypaid, but by adding up the the total list price of procedures recommendedby the book for such illnesses as they declared were caused by smoking. Inreal life many of the procedures are skipped, what is actually paid byinsurance companies is a discounted amount, and some illnesses go largelyor completely untreated. As a result, the "costs" they used bear littleresemblance to those of Taylor, Viscusi, Manning or the CRS.

A recent issue of the New Yorker magazine had a short article on smoking andhealth costs. Its take-off point was the recent Florida law which authorizesthe State to sue tobacco companies for its cost of providing health care tosmokers. Some of the arguments seem worth quoting:

"...there is something slightly off about Florida's arithmetic -- and, more broadly, about the whole notion of health care as an exercise inbargain-hunting. Florida says that it has spend a billion two hundredmillion dollars over the past five years in Medicaid payments forsmoking-related illnesses. But that figure is misleading. While smokersuse a lot of state-sponsored health care, and about three and a halfbillion dollars a year of federal Medicare money, they also tend to diearound five years earlier than nonsmokers. That means five fewer years of theheavy health-care burdens of old age, five fewer years of nursing-home care,and five fewer years of drawing a federal pension.

"In fact, for those inclined to such ghoulish calculations, the easier caseto make is that smokers save society money. Around a third of the Americanswho die from smoking-related causes die before the age of sixty-five, andthat means that after paying into Social Security throughout their workinglives many of them will collect little or nothing from it. In effect, theysubsidize the pensions of nonsmokers. How great is the subsidy? Theshortened life span of just those smokers born in 1920, according to arecent study by three Stanford University researchers, will end up savingthe Social Security system fourteen and a half billion dollars. All told,they conclude, smoking will reduce the obligations of the system by'hundreds of billions of dollars.' And, while it's true that smokers areout sick more frequently than their more virtuous fellow-citizens, it'salso true, alas, that illness and death, with their attendant costs to thehealth industry, come to us all."

And the French have discovered the same thing:

PARIS (AP) -- Smoking, long considered a costly health care burden, actuallyreaps the government an annual profit, according to a study released Fridayby Paris' Institute of Political Science. High tobacco taxes and socialsecurity savings gained by premature deaths made the French government a netprofit of 18.5 billion francs (dlrs 3.5 billion) in 1990, the studyrevealed.

The study, by Professor Jean-Jacques Rosa, attacks the idea that smokingcreates "a considerable social cost." "Premature deaths of retired smokersbenefit society because the government no longer has to pay their socialsecurity benefits or their health-related expenses," the professor said.

According to the study, French smokers have a life expectancy of about 67years, which is six years less than the average French citizen. The studyestimated smoking-related medical expenses to cost the government about 26.5billion francs ($5 billion).

However, the combined profits from tobacco taxes and the annual savingsbrought about by premature deaths total about 44.9 billion francs ($8.5billion). "Consuming alcohol and tobacco, just like reading or going tothe movies, must be left to individual choice, and not be considered asocial cost," Rosa said.

Finally, an article on the Viscusi study from the San Jose Mercury News(3/27/95):

Study Looks at Who Pays for Costs Cigarette Smokers Impose on SocietyBy David Ress, Richmond Times-Dispatch, Va. Knight-Ridder/Tribune BusinessNewsMar. 27--If there's no such thing as a free lunch, is it possible to atleast get a free smoke?

Nope, says Duke University economist W. Kip Viscusi. In a recent paper forthe National Bureau of Economic Research, Viscusi took a hard look at thequestion of who pays for the costs smokers impose on society.

These include additional health-care costs, passed on to everyone in theform of higher health insurance premiums and taxes for Medicare. Theyinclude additional sick days at work; more fire risks and higher grouplife insurance rates.

Viscusi calculated the additional health-care costs for smokers at theequivalent of about 55 cents for every pack of cigarettes bought in theUnited States.

The added sick days, he figures, aren't that big a deal: he estimates theycost society the equivalent of a penny a pack.

Viscusi pegs the extra fire risk at about two cents a pack. This risk comesfrom those who smoke in bed or never listened to what Smokey Bear said aboutpitching lighted cigarettes in the woods.

The economist puts the added cost to group life insurance policies at 14cents a pack.

That adds up to social costs of 72 cents a pack. The federal governmentcollects 24 cents a pack in excise taxes, and the states average another29 cents. Taken together, that suggests 19 cents a pack of costs to societythat cigarette taxes aren't paying.

For Virginia, with its 2.5 cent-a-pack cigarette tax, the shortfall wouldbe more like 45.5 cents a pack.

But wait. Smokers don't live as long as nonsmokers. That, says Viscusi,means they spend less time than nonsmokers do in nursing homes. That's asaving to society equal to 23 cents a pack.

Smokers don't collect pensions and Social Security for as long as nonsmokersdo, Viscusi adds. There's a saving to society equivalent to $1.19 a pack.

Society does lose out, though, in tax collections. If smokers lived longer,the additional taxes they'd pay on their income would translate to theequivalent of about 40 cents a pack.

Overall, though, as Viscusi counts it, the cigarette taxes smokers pay morethan compensate the rest of us for the additional costs they impose onsociety.

(end quoted article)
Viscusi's bottom line: a net saving to society of 83 cents per pack.

And absenteeism? This is largely a result of excessive drinkingand ensuing hangovers. Based largely on socio-economic differences, ahigher proportion of smokers drink than non smokers. Accordingly, if yousurvey absent workers and ask only the question "Do you smoke?", smokerswill appear to be absent more often. But it is alcohol which is primarilyresponsible. If only non drinking absentees were surveyed, there would beno correlation between smoking and absenteeism.

Apart from being wrong as to fact, however, the social cost arguments dependon a dangerous proposition: that when society, through taxes or insurance,shares costs and spreads risks it thereby becomes entitled to regulate,control and even prohibit behaviors deemed "costly". This is the perfectprinciple with which to transform a free society into a nation of brothers'keepers, since there is virtually no human activity to which it cannot beextended.