The father of free markets, Adam Smith, made the case in his seminal book The Wealth of Nations (written in 1776) that
“Sugar, rum, and tobacco, are commodities which are no where necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.”
Today, the Bloomberg Philanthropies Task Force on Fiscal Policy for Health, which was chaired by Larry Summers and Michael Bloomberg, delivered its important report entitled, “Health Taxes to Save Lives”. The report makes the case for governments to begin rapidly implementing and then raising taxes on three goods that collectively cause 16 million premature deaths every year: sugary beverages, alcohol and tobacco.
243 years after the publication of The Wealth of Nations, Adam Smith might very well approve.
The report lays out the detailed rationale for these policies from the perspective of health, fiscal considerations and overall policy efficacy.
The bottom-line finding of the report can be summarized with this truly enormous statement:
“If all countries increased their excise taxes to raise prices on tobacco, alcohol, and sugary beverages by 50 percent, over 50 million premature deaths could be averted worldwide over the next 50 years while raising over US $20 trillion of additional revenues in present discounted value.”
Delving just a bit deeper from the perspective of The Tobacco Atlas, we wanted to break out the specific case for raising tobacco taxes as made by the report.
The economic models that underlie the report find that in a world where every country raised the prices of all three products by 50%, the relative contributions of each product to the total health and revenue benefits are not equal.
For example, when viewed from a health perspective, price increases on tobacco products would avert 27.2 million early deaths while price increases on alcohol and sugary beverages would stop 21.9 million and 2.2 million early deaths respectively.
By contrast, when this policy is viewed from a fiscal perspective US $16.7 trillion would be raised from alcohol tax increases, while US $3.0 trillion would be raised from tobacco tax increases and US $1.4 trillion from sugary beverage tax increases. This discrepancy is accounted for by the relative rarity of alcohol excise taxes being in current use around the world compared to tobacco taxes. These differences should not, however, do anything to diminish the findings by the committee and its phalanx of talented economists.
In fact, the vast health and productivity improvements from significantly lower tobacco consumption will generate trillions more in economic gains. The world should take note of their excellent work and health advocates who may be focused on one product over any of the others should more generally support efforts to pass substantial excise taxes on unhealthy goods to improve the public health.
Finally, the report also persuasively makes the case that these taxes are a development issue, affecting low-and-middle-income countries much more than high-income countries. 91.1% of averted premature deaths from tobacco in the policy simulation would be located outside of high-income countries. These countries have the most to lose through inaction, and the most to gain by taking decisive action.