Blog contributor Don Rippert and I have been engaging in an invigorating tit-for-tat in the comments section of the blog. I thought the subject matter of sufficient interest to elevate it to the level of a full-fledged blog post. The topic: Should Northern Virginia be compensated for the failure of downstate Virginia localities to tax cigarettes like they do in Northern Virginia?
Don’s underlying charge is that Virginia’s countenance of the nation’s second lowest cigarette tax, $.30 per pack, represents an indirect subsidy to the Richmond region, a payoff to Altria, owner of Philip Morris USA and the nation’s largest manufacturer of cigarettes, which is located here. His logic runs something like this: High taxes discourage smoking. Smokers have higher medical bills. Insofar as smokers tend to be poorer than the general population, they are more likely to be on Medicaid. Virginia pays for half of Medicaid (the federal government pays the other half), which means state taxpayers bear the burden of smokers’ poor health choices. Fairfax County has imposed an additional $.30 tax on top of the state levy, thus doubling the sanction against cigarette smoking, whereas my county of residence, Henrico, has not.
Wrote Don: “Given that you understand that taxing cigarettes does reduce smoking, I assume you also understand that failing to tax cigarettes increases smoking. How much should the residents of Northern Virginia be asked to pay for Henrico County’s unwillingness to curb cigarette smoking through the imposition of local taxes on the sale of those cigarettes?”
Then he goes in for the kill: “You claim to like ‘user pays.’ The Richmond area benefits from having Phillip Morris headquartered in Richmond. In turn, Richmond jurisdictions such as Henrico County avoid offending their friends at Phillip Morris by imposing local taxes on cigarettes. This, in turn, increases the smoking rate and costs everybody in the state money for treating the unfortunate victims of cigarette smoking.”
“So, I ask once again – how much should the Richmond area pay back to the Commonwealth of Virginia for its sad refusal to use the common practice of taxation to reduce the provably deadly practice of smoking?”
OK, you really got me there, Don. Ha! Ha! Except you didn’t get me!
First, let’s ask ourselves, how significant is that $.30 Fairfax County cigarette tax? The combined state+county tax of $.60 equals that of the state of Kentucky, whose tax ranks only 40th in the country. You want a serious tax? Look north. New York’s $4.50 per pack is as serious as lung cancer.
Well, one might respond, Fairfax’s $.30 tax is better than nothing. How much effect does that have in discouraging smoking? Let’s look at the correlation between the tax per pack and smoking rates. Using Gallup Poll data for state smoking rates, we get:
How about that? Virginia’s tax is half of Kentucky’s but Virginia has a much lower smoking rate. Virginia’s tax is one-fifteenth that of New York’s but the Old Dominion has the same smoking rate. Fairfax County (according to this source, using an unknown methodology) does have a lower smoking rate than Virginia as a whole but it’s unclear if any of that is due to the tax. Smoking is highly correlated with education, and Fairfax County has a much higher level of education. Admittedly, the smoking research is almost unanimous that there is a connection between taxes and smoking, but it is only one of many factors and the impact is easily overstated.
The next flaw in Don’s logic is his implicit assumption that downstate Virginia’s healthcare spending is necessarily higher as a result of the higher smoking rate. Perhaps the smoking does add to costs. But that’s not the whole story. Let’s look at the numbers provided by the Dartmouth Atlas on the average spending per Medicare enrollee in the Richmond and the Arlington hospital referral regions. (Medicare enrollees do not have the exact same medical profile as Medicaid enrollees, but this article concludes that “there is a strong relationship between Medicare and Medicaid spending in comparing Hospital Referral Regions (HRR) within each state.”)
$7,244 — Arlington HRR spending per year
$7,239 — Richmond HRR spending per year
Oh, my. There goes Don’s argument up in smoke. The average annual cost per Medicare enrollee is actually $5 cheaper in Richmond than in Arlington despite the lack of local cigarette taxes to repress smoking. Assuming the same pattern applies to Medicaid spending, it turns out there is no inter-regional subsidy at all. Indeed, add the cost of reimbursements for professional and lab services, and Arlington enrollees cost taxpayers $335 more per year. Maybe Richmonders should demand compensation from Northern Virginia!
For the record: I think smoking is a really bad idea and ought to be discouraged. Also, I do subscribe to a “user pays” philosophy. People should be held responsible for slovenly health habits like smoking just as they should be held responsible for slovenly driving habits like driving under the influence. Ideally, health care insurers (including the Medicare program) would impose direct financial penalties on smokers in the form of higher insurance rates. That’s impossible in the case of Medicaid recipients, who don’t pay for their coverage. Perhaps there are other options for them, such as rewarding them for quitting. But turning the issue into one of “mom likes your region best” doesn’t accomplish anything.