NCPA - National Center for Policy Analysis

States Gain More From Smoking Than They Lose

April 11, 2000

In the 1990s over 40 states filed lawsuits against the tobacco industry, claiming increased health care costs due to cigarette smoking. Under the settlement with the tobacco companies, the states will receive an estimated $233 billion in payments from the tobacco industry over the next 25 years.

Yet a study by economist W. Kip Viscusi published by the Journal of Law and Economics shows that the states already benefit from decreased state pension costs and nursing home expenditures because of the earlier mortality of smokers. These savings exceed the states' smoking related health care costs. When the state excise tax on cigarettes is added in, the net effect is a huge windfall for the states, even without the money from the tobacco lawsuits.

  • For example, in New York, which has the highest medical care costs associated with smoking of $.08 per pack, the nursing home cost savings offset is almost as great, with an additional insurance cost savings of $.04 per pack.
  • Add to that the New York state excise tax of $.56 per pack, and the benefits to state coffers for cigarette smoking per pack is $.68.
  • At the other extreme, Virginia, which has the lowest excise tax rate -- $.025 per pack -- is still a net beneficiary because their excise tax roughly equals the state's smoking related medical care costs.
  • Throw in nursing home cost savings, and cigarettes save the Commonwealth of Virginia $.09 per pack.

In fact, excise taxes on cigarettes equal or exceed medical care costs associated with smoking in all states, thereby thoroughly undermining the premise on which tobacco lawsuits are based.

Source: W. Kip Viscusi, "The Governmental Composition of the Insurance Costs of Smoking," Journal of Law and Economics, October 1999.


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