ZEW President Franz on Tax Increases for Smokers


This piece appeared in the June 2003 edition of the ZEWnews.

Just think what a wonderful thing it would be: a tax on the basis of which everyone is actually better off by increasing it—namely, the tobacco tax. The state receives additional financial resources for their cash-strapped coffers, smokers are freed from a health-damaging vice and may (finally) enjoy their lives, non-smokers no longer have to feel annoyed by unpleasant cigarette smoke, and social security systems look forward to a recovery while (professional) cigarette smugglers salivate at the promising business prospects.

But, but, who will really go spare on account of this ridiculousness? Surely, this person would prefer to ...! Then perhaps we can think of similarly delightful taxes. How about, for example, a tax on individual physical excess weight, in short, a corporeal tax (not to be confused with the corporate tax)? The growth rates in the diet industry will be fantastic. A wide field indeed. A Commission with equal representation must be set up as soon as possible. Wouldn't you like to take over the chair, the (your name) commission and therefore the (your name) tax?

Seriously, anyone who believes that increasing tobacco tax will generate additional tax revenue and at the same time reduce smoking and relieve the burden on social security systems will believe anything. Either the tax tightening actually causes a strong decrease in cigarette consumption, at which point the hope for additional tax revenues will have turned out to be, at best, very naïve, possibly resulting in lower tax revenues. Or, the smokers literally stick to their guns, at which point the measure will have become a failure from health care’s perspective. Furthermore, as far as the relief of social security systems is concerned, it has never actually been proven that reduced smoking equals reduced social security expenditure. Although the treatment of diseases caused by smoking does incur costs, on the other hand, smokers die earlier—as macabre as that sounds—which is a relief above all for state health insurance and pension agencies. No one is suggesting here that we hand over bonuses to smokers, but to label smokers par excellence as cost drivers in the social security sector simply doesn’t correspond to reality.

Let’s not forget that evasive reactions of passionate smokers are to be expected. Smuggling flourishes in border areas. In Berlin, it’s difficult to avoid the impression that cigarettes are primarily purchased from Vietnamese traders or via German-Polish border traffic. Smoke shops in Konstanz only see unsuspecting tourists buying cigarettes, while citizens in Konstanz tend to make their purchases in neighbouring Switzerland (thereby filling up cheaply, no doubt). Furthermore, if the tax increase only applies to cigarette packs, smokers will merely switch to rolling and smoking their own, or perhaps even turn to more noble pleasures in the form of cigars, as they are said to be by all accounts spared the smokers tax (a scoundrel, certainly, he who thinks evil of them).

Last but not least, for good reasons, a principle of taxation demands that the earmarking of individual taxes for certain expenses should be excluded ("non-affectation principle"). But that’s no fun at all, since citizens want to know exactly what they’re paying ecology, tobacco, and inheritance taxes for: namely, burned money for pensions, smoke and fire for internal security and maternity pay, and death for education. Now, is that too strong of a tobacco?