The government's crusade against tobacco: can it ultimately succeed?

• Author: Lee, Dwight R.

Based on past performance, medical warnings, high excise taxes on cigarettes, and anti-tobacco media campaigns will have no long-term effect on smoking.

Federal, state, and local governments Fare crusading against tobacco. The charge is being led at the Federal level by the Food and Drug Administration, with its restrictions on cigarette advertising. At the state level, 40 attorneys general have sued the tobacco industry for reimbursement for Medicaid expenses. State excise taxes have been increased on cigarettes, with much of the revenue earmarked for a host of anti-smoking mass media campaigns. This crusade led to a historic agreement (which foundered in April) whereby the tobacco industry would pay more than $360,000,000,000 over 25 years to reimburse states and fund anti-smoking media campaigns, among other things. Cigarette advertising would be further restricted with no ads at sporting events, billboard ads, or pictures of humans or cartoons within those ads.

Will this crusade reduce smoking, particularly among teenagers? Probably not. Despite the claims of organizations that receive funding from tobacco tax revenues, punishing and preaching have not been, and are unlikely to be, significant factors influencing smoking rates, especially among teens. The evidence is even weaker that government restrictions on tobacco advertising reduce tobacco use.

Like most goods, the quantity of cigarettes demanded is related inversely to price. Increasing the price of cigarettes with excise taxes reduces the amount sold.

States that significantly have raised their excise tax on cigarettes have reported large reductions in cigarette sales. For example, New York and California have imposed sharp excise tax increases on cigarettes since 1988, and both report large declines in sales: 31% in New York and 28% in California. Similarly, Michigan's sales dropped 30% the year following a raise in taxes. Such evidence seems to support the argument that raising taxes is an effective way to reduce smoking. A closer look, however, shows that this is not the case.

When a state hikes its cigarette tax, the price of cigarettes taxed within its borders goes up. There also is an increase in the sale of cigarettes brought in from other states or jurisdictions with lower taxes. Some of these cross-border sales are the result of people bringing in small quantities of cigarettes after visits to nearby low-tax states, Indian reservations, and/or military bases where state taxes don't apply. Much of the cross-border traffic in cigarettes, though, is supplied by organized smuggling.

Michigan, for instance, has suffered from a smuggling epidemic since it raised the cigarette excise tax to 75 cents from 25 cents per pack in 1994. The Detroit Free Press, in a front-page article entitled "Smugglers Win," revealed pervasive smuggling networks in Michigan. According to the article. "Michigan's higher tobacco tax has spawned rampant cigarette smuggling that's siphoned millions of tax dollars from the state treasury, while lighting up huge profits for traffickers."

So, while legal cigarette sales in Michigan dropped by 30% from July 1, 1994, to June 30, 1995, this was not accompanied by a decline in smokers in the state. In fact, smoking rose in Michigan from 25.2 to 25.7% from 1993 to 1995, according to a survey by the Centers for Disease Control. Not surprisingly, while Michigan cigarette sales were dropping, those in low-tax states within a day's drive increased significantly. For example, in the year after the Michigan tax hike, sales rose 12% in North Carolina, 8.5% in Indiana, 7.5% in Tennessee, six percent in Kentucky and Missouri, and 4.5% in Ohio and Virginia.

Maryland raised its cigarette tax by 20...