NCPA - National Center for Policy Analysis


May 25, 2005

Minnesota's proposed "Health Impact Fee" will require smokers to pay an additional 75 cents per pack to cover societal costs. But is this a tax or a fee? Smokers are already paying for those costs to society, so why should they pay more, asks the Tax Payers League (TPL)?

Currently, smokers pay a tax of 48 cents per pack plus a "distributor license fee." Federal taxes add 39 cents per pack. Additionally, smokers fund tobacco settlements amounting to hundreds of billions of dollars.

According to a study in the Journal of the American Medical Association (JAMA), the societal costs of smoking amount to about 15 to 24 cents a pack in 1986 dollars, which translates into 27 to 43 cents a pack in 2005 dollars. Those costs are less than the current taxes charged by the state and federal government:

  • Smokers were paying an extra 64 cents a pack in 1998 to cover the cost of taxes charged by the state and federal government.
  • This year alone, Minnesota is getting about $200 million in tobacco settlement dollars from smokers, adding up to $1.6 billion paid into state coffers since 1998.
  • Tobacco products are also subject to a 6.5 percent sales tax.

Smokers pay $1.60 per pack in direct and indirect taxes to the government, with the average retail price of a pack at $3.81. When compared to the estimates by the JAMA, "smokers are subsidizing non-smokers to the tune of over a $1 per pack," covering the proposed societal costs, says David Strom of the Tax Payers League.

Since a majority of smokers fall into the lower-income bracket, the Health Impact Fee will become one of the most regressive taxes. The Health Impact Fee on cigarettes also opens a can of worms; sugar, corn syrup, trans-fatty acids, saturated fats, and a whole host of other foods are known to have adverse health effects. "What next, a twinkie tax?" asks Strom.

Source: David Strom, "Studies Show Smokers Pay Their Way," Tax Payers League, May 23, 2005.

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