Cost/benefit Analysis of Cigarette Smoking

Introduction

The overall economic costs of smoking cigarettes has become somewhat of an epidemic in society for a variety of reasons. It includes numerous private and social costs. The private cost to smokers goes far beyond the price of cigarettes alone. Smokers also pay with their health, life, and finances. Alongside the great cost to smokers, they enjoy benefits to the same degree. The total cost of smoking not only effects smokers, but society as well. The externalities from smoking are both negative and positive. Society bears the burden of the negative externalities, or social costs, both physically and monetarily. The positive externalities, or social benefits, play a significant economic role in society. The tobacco industry generates a great deal of revenue; thus adding to the country’s GDP. And due to the heavy taxing, cigarettes and tobacco are a rich source of revenue to the Treasury.

Does the social cost of smoking outweigh the social benefit? Are tobacco taxes reasonable and fair? In order to answer these questions the issues addressed in the following paragraphs include the social costs of smoking, whether smokers cover the smoking-related costs that the rest of the community bears, and whether the average lifetime health care costs of tobacco users is higher than those of non-smokers. The private costs and benefits which effect every consumer of cigarettes will be analyzed first. Then the social costs and benefits resulting from private externalities will be analyzed. The revenue, taxes, and tax effects will be outlined and evaluated for fairness.

Finally, a conclusion and summary of the results will be given.

The Private Cost and Benefit of Smoking Cigarettes

The total cost of cigarette consumption to smokers is extensive. It includes monetary costs, health costs, and discriminatory costs. “Researchers at Duke University found that the total cost of smoking -- the cigarettes, lost earnings, impact on insurance on mortality, even the impact of secondhand smoke -- runs about $40 [41.50] per pack for the average 24-year-old.”(Sloan)

Cigarettes alone are expensive. According to the Fair and Equitable Tobacco Reform Act of 2004, the national average price per pack of cigarettes in the U.S. is $3.80. Therefore, the average smoker of one pack a day will spend $1,368.00 per year on cigarettes. Someone living in Manhattan, New York will spend about $2,520.00. On a federal and state by state basis, the prices continue to rise due to tobacco tax increases. Unfortunately, the isolated cost of cigarettes does not make up the total monetary cost of smoking.

Along with tobacco taxes, there are many additional costs for smokers. On average, the life expectancy is shorter for smokers than for non-smokers, therefore smokers generally pay higher life insurance premiums. Due to the many smoking related illnesses, smokers generally pay higher health insurance premiums. Due to the increased risk of fire, smokers generally pay higher homeowners insurance premiums. Those who smoke in their homes incur cleaning, repainting, and re-carpeting costs if they want to sell their home. The resale value on a smoker’s car is less than that of a non-smoker because of burns on the upholstery and cigarette odor. There are also many other miscellaneous