Low-income households feel the burn from cigarette taxes
Cigarette smoking remains the leading cause of preventable death in the United States, and over the past 25 years, state and federal legislatures have increased taxes on cigarettes in a successful bid to induce smokers to quit. According to the American Lung Association, every 10% increase in the price of cigarettes reduces consumption by about 4% among adults.
“But while much study has been done to examine how taxes affect smoking prevalence, far less is known about how smokers adjust their household spending when cigarette taxes rise,” says Michael Darden, an associate professor at Johns Hopkins Carey Business School and academic program director of the Health Care Management program.
To investigate that question, Darden and three colleagues embarked on a two-part study to examine the effects of cigarette excise taxes on smokers’ household budgets.
Central to their work, Darden notes, is the socioeconomic shift in smoking prevalence across the United States. While smoking has declined significantly among middle- and upper-income households, the practice today “is concentrated in areas that are relatively disadvantaged,” he says. “We wondered: Are disadvantaged households making difficult choices to pay for an increasingly expensive product?”
Unintended consequences
In the first part of their working paper, Darden and his colleagues conducted a randomized experiment using a novel survey of 2,005 cigarette smokers, with questions about their intention to keep smoking and their expected expenditures across a variety of spending categories, all within the context of a large, hypothetical cigarette tax increase.
The second part paired detailed, nationally representative expenditure data from the Consumer Expenditure Survey with a quasi-experimental design—state-by-quarter variation in expenditures around variation in cigarette taxes from 1996 through 2022. The CE survey, which plays a central role in constructing the Consumer Price Index, consists of two survey instruments: an interview survey and a diary survey.
Collectively, the researchers found that increased cigarette taxes did reduce smoking prevalence. They also found that lower-income people who smoked more heavily at baseline were more apt to continue smoking and pay more to support their habit while reducing expected spending in other areas.
“We find consistent evidence of expenditure cuts in areas such as education, housing, and healthcare, particularly among [lower income] groups,” says Darden, whose fellow researchers include Reginald Hebert of Yale University; Michael Pesko of the University of Missouri; and Samuel Sturm of Johns Hopkins Bloomberg School of Public Health.
“Our work uncovers important unintended consequences of cigarette taxes, particularly for low-income individuals, who finance increased cigarette costs by reallocating their household budgets away from essential goods and services,” says Darden, who also serves as a research faculty fellow at the National Bureau of Economic Research.
“Money raised by cigarette taxes often isn’t used to help the people in low-income communities who are paying the taxes. We need to hold policymakers’ feet to the fire: If they are going to raise revenues, they need to spend it on the people most affected.”
Holding policymakers’ feet to the fire
Darden emphasizes that his team’s findings do not negate the positive health impacts of increased cigarette taxes. “In no way are we arguing that cigarette taxes shouldn’t be raised to get people to stop smoking,” he says.
If price hikes cause even one smoker within a low-income community to kick the habit, that person may well gain an extra 10 years or more of longevity and productivity, “which would swamp the fact that on average, households in our study are spending $48 less per quarter on education or health care,” he says.
However, a key takeaway from the study, Darden notes, is the need for policymakers to ensure that funds raised from cigarette taxes are earmarked to more intentionally benefit smokers in low-income households by helping them quit. The researchers cite examples such as offering free access to nicotine replacement therapies, counseling, and smoking cessation medications; and/or financial incentives conditioned upon completing smoking cessation programs, attending health check-ups, or enrolling children in preventive health programs.
“Currently, that doesn’t happen in practice,” Darden says. “Money raised by cigarette taxes often isn’t used to help the people in low-income communities who are paying the taxes. We need to hold policymakers’ feet to the fire: If they are going to raise revenues, they need to spend it on the people most affected.”
