It is likely, however, that these studies have un-
derestimated the direct costs of smoking for a variety
of reasons (Warner et al. 1999). For example, they
ignore other significant economic costs, including the
costs of transportation associated with obtaining
medical care and the costs of nonmedical care associ-
ated with accommodating a person with a smoking-
related chronic illness. These estimates also generally
fail to account for other medical care costs related to
cigarette smoking, such as burn care from injuries in
smoking-related fires and perinatal care for low-birth-
weight infants of mothers who smoke. Few studies
have attempted to include the direct costs for non-
smokers of diseases related to exposure to ETS, and
none of these studies has tried to estimate the intan-
gible costs of smoking-related illnesses (i.e., the pain
and suffering associated with the illness and the grief
experienced by family and friends).

A human capital approach is generally used to
estimate the indirect morbidity and mortality costs
associated with cigarette smoking. This approach
views an individual as producing a stream of output
or earnings computed at market value or as the im-
puted value of housekeeping services. Thus, the value
of a person is reflected by his or her earnings, and the
lifetime value for that person is equal to the discounted
Stream of future earnings (Max and Rice 1995). This
approach places a relatively high value on morbidity
and mortality among young adults, men, and the more
educated because of the relatively higher earnings that
would be lost by these smokers (Markandya and
Pearce 1989); moreover, lost earnings may not be an
accurate reflection of the value people place on their
health or on their lives. Furthermore, the human capi-
tal approach is in contrast to the “willingness-to-pay”
approach, which tries to estimate the value a person
assigns to reducing his or her risk of premature death.

A more controversial component in the compu-
tation of the lifetime costs of smoking concerns the
treatment of transfer payments. These transfer pay-
ments include the reduction in income taxes and in-
surance premiums paid by smokers because of reduced
earnings associated with smoking-related illnesses, the
value of Social Security and private pensions foregone
because of smoking-related premature deaths, higher
health care costs associated with smoking-related
illnesses and paid by public and private insurance
plans, and increased sick pay and disability benefits
paid during smoking-related illnesses. Particularly ob-
Jectionable to many people is the idea that foregone
Social Security and private pension benefits from smok-
ers who die prematurely from smoking-related illnesses
should be considered “benefits” to nonsmokers. As

Reducing Tobacco Use

Harris (U.S. House of Representatives 1994) and oth-
ers have noted, premature deaths are not considered a
benefit when policymakers determine what levels of
funded research are appropriate for reducing prema-
ture deaths from other risk exposures (CSH 1994;
Warner et al. 1995, 1999), Nevertheless, several recent
estimates of the costs of smoking have considered these
foregone benefits in their computations of the economic
costs of cigarette smoking (Manning et al. 1989, 1991:
Shoven et al. 1989). These studies aim to provide a
complete accounting of the costs of smoking to answer
the question of whether payments by those who have
ever smoked into collectively financed systems such
as Medicare and Social Security equal receipts by those
who have ever smoked.

Theoretically Optimal Cigarette Taxes

As was just discussed, several estimates of the
optimal or fair tax on cigarettes are based on the vari-
ous studies of the costs of smoking. In the context of
the preceding discussion, an optimal tax is one that
equates the total revenues from these taxes to the net
external costs of cigarette smoking. These estimates
have ranged from those implying that current taxes
more than cover the external costs of smoking (Man-
ning et al. 1989) to those that have suggested that cur-
rent taxes are far too low. For example, one such study
that included the costs of the long-term intellectual and
physical consequences resulting from smoking-related
low birth weight among infants born to mothers who
smoke indicated that $4.80 was an appropriate tax on
a pack of cigarettes (Hay 1991).

Another study (Pigou 1962) advanced a similar
notion in providing a theoretical justification for taxes
on goods with market prices not fully reflecting the
social costs associated with their production and con-
sumption. From that perspective, these taxes could
be viewed as improving economic efficiency by rais-
ing a smoker’s marginal cost of smoking to a level
nearer the social marginal cost. For some goods, taxes
could generate revenues that exceed total external costs
because the taxes would be based on marginal rather
than average external costs (Cook and Moore 1993).

Estimates of optimal taxes on cigarettes imply that
smokers are fully informed about the risks associated
with cigarette smoking (Cordes et al. 1990). If smokers
underestimate these risks, then even higher taxes could
be appropriate to discourage people from smoking.
This issue may be particularly relevant for an addic-
tive product such as cigarettes if, when people take up
smoking, they do not fully understand the addictive
properties of consumption and the implications of

Econonuc Approaches 353
Surgeon General’s Report

addiction for future choices. Gruber and Koszegi
(2000), for example, concluded that if these “internali-
ties” are taken into account, they suggest sizable addi-
tional taxes of one dollar or more per pack of cigarettes.

Among the most widely cited recent estimates
of the optimal tax are the studies of the economic costs
of cigarette smoking by Manning and colleagues (1989,
1991). These incidence-based estimates used data from
the RAND Corporation’s Health Insurance Experiment
and the 1983 National Health Interview Survey. To
calculate the optimal tax on cigarettes, the analyses
estimated both the lifetime external costs associated
with cigarette smoking and the perceived “savings”
that result from smokers’ dying earlier and not realiz-
ing their pension and Social Security benefits.

Using their midrange estimates, Manning and col-
leagues (1989, 1991) concluded that for a new smoker,
the total external cost of smoking was 43 cents per pack
of cigarettes in 1986. This estimate comprised 1 cent in
extra costs for sick leave, 2 cents in costs for smoking-
related fires, 5 cents in added costs for group life insur-
ance, 9 cents in lost tax revenues (to finance retirement
and health benefits), and 26 cents in spending on addi-
tional medical care. These costs would be offset, how-
ever, by an estimated 27 cents per pack in external
savings resulting from smoking-related premature
deaths. Converting these figures to 1995 dollars (based
on the medical service price index and the gross national
product deflator), the CRS estimated a net external cost
of 33 cents per pack for cigarettes, which is approxi-
mately two-thirds of the average federal, state, and lo-
cal taxes on cigarettes of 50 cents per pack in late 1993
(Gravelle and Zimmerman 1994). The CRS thus con-
cluded that smokers were more than paying their way.

Critics of the studies of Manning and colleagues
(1989, 1991) contend that many of the assumptions
made in obtaining the estimates are inappropriate. If
the analyses had not included the effects of unrealized
pension and Social Security benefits of smokers who
die prematurely, the resulting external costs of smok-
ing would have amounted to approximately 89 cents
per pack in 1995 dollars.

Moreover, the studies of Manning and colleagues
(1989, 1991) made a debatable distinction between in-
ternal costs (those borne by the smoker) and external
costs (those that smokers impose on nonsmokers). For
example, the lost productivity costs described in those
analyses were treated as internal costs, whereas only
the higher, collectively financed, group premiums for
health, life, and other insurance that nonsmokers paid
to cover smoking-related costs not reflected in the pre-
miums paid by smokers were considered external costs.

354 Chapter 6

More controversial, however, was these analy-
ses’ assumption that the cost of ETS was an internal
cost. This assumption was based on the argument that
the family is the economic unit involved in making
smoking and other decisions and that the health con-
sequences of ETS are largely confined to the nonsmok-
ing spouses of smokers. As Manning and colleagues
(1991) note, when this assumption is modified to treat
the consequences of passive smoking as external costs,
the estimated external costs of smoking rise signifi-
cantly. For example, under the assumptions of
Gravelle and Zimmerman (1994) concerning prices, the
estimates of Manning and colleagues (1991) imply that
including the relatively conservative estimate of 2,400
lung cancer deaths from ETS would add approximately
31 cents per pack (in 1995 dollars) to the external costs
of smoking. Similarly, updating the researchers’ esti-
mates of the costs of neonatal care for smoking-related
low birth weight would add more than 4 cents per pack.
Doing the same for deaths from smoking-related fires
would add 20 cents per pack and for smoking-related
fetal deaths would add 31 cents per pack.

These estimates probably understate the true
costs of ETS. After reviewing the literature on the links
between ETS and heart disease, Glantz and Parmley
(1995) concluded that 30,000-60,000 persons die pre-
maturely from heart disease related to ETS. Including
these numbers in estimates by using the same assump-
tions used in the CRS report would add at least an-
other 70 cents to the estimate of the optimal tax.
Moreover, the CRS report ignored the 150,000-300,000
cases of ETS-linked lower respiratory tract infections
in children up to 18 months old and the ETS-linked
worsening of asthma in 200,000 to 1 million children
(Environmental Protection Agency [EPA] 1992). In-
cluding these costs would lead to an even larger opti-
mal tax. Finally, the estimates excluded the long-term
developmental consequences suffered by infants with
smoking-related low birth weight (Hay 1991); were
these costs included, the optimal cigarette tax would
be nearly $5 per pack.

Using the human capital approach, Manning
and colleagues (1989, 1991) estimated that the life of a
nonsmoker who died prematurely from ETS exposure
was worth $1.66 million. In a recent cost-benefit
evaluation of the proposed Smoke-Free Environment
Act of 1993 (introduced in the 103rd Congress but not
passed), the EPA (Mudarri 1994) used the willingness-
to-pay approach and obtained a $4.8 million baseline
estimate of the value of a life. The EPA also used this
approach to include the effects of ETS on heart dis-
ease and children’s health when calculating the value
of benefits from reduced ETS exposure.
By using the willingness-to-pay approach and
making some relatively conservative assumptions, the
EPA estimated that the total benefits from the reduced
ETS exposure that would result from a ban on smok-
ing in all worksites was $39-71 billion per year. This
estimate assumed that the ban would reduce the num-
ber of current smokers by 3-6 percent, the number of
future smokers by 5-10 percent, and consumption
among continuing smokers by 10-15 percent; the re-
sulting total long-run reduction in consumption would
be 14-22 percent. The combined effect of these reduc-
tions in smoking and of the creation of designated
smoking areas was predicted to reduce out-of-home
exposures to ETS by 90 percent and in-home exposures
by a midrange estimate of 6 percent. Estimates from
the 1992 EPA report on ETS and lung cancer suggested
that 73 percent of exposures to ETS occur outside the
home and that 27 percent occur in the home. The total
reduction in ETS exposure was thus predicted to be 66
percent; if it were applied to estimated total ETS costs
of $58.7-106.9 billion, this reduction would vield the
EPA’s estimated cost benefits of $39-71 billion. Given
current cigarette sales of about 24 billion packs per year,
this estimate implied that the per pack external costs
of ETS were between $2.45 and $4.45. This estimate is
likely to be low, because the short-term and long-term
costs of fetal and perinatal exposure to ETS were not
included in the EPA’s computations.

Viscusi (1995), however, reached a much different
conclusion in analyzing the social costs of smoking. This
investigator updated much of the analysis by Manning
and colleagues (1989, 1991), used a willingness-to-pay
approach, and included the same ETS risks used in the
EPA’s analysis (Mudarri 1994). Viscusi, however, ar-
gued that the EPA approach overestimated the risks of
ETS by failing to account for the change in the tar con-
tent of cigarettes and the changes in cigarette consump-
tion per smoker. Noting that the average tar content of
cigarettes declined from 46.1 mg per cigarette in 1944
to 12 mg per cigarette in 1994, Viscusi asserted that the
health risks associated with cigarette smoking, as well
as the risks from exposure to ETS, are linearly related to
the tar content of cigarettes. Although presenting no
evidence for either assertion, he contended that esti-
mates of the health risks based on consumption of
higher-tar cigarettes and exposure to ETS from higher-
tar cigarettes need to be adjusted to reflect the decline
in tar content. When not adjusting for tar, Viscusi ob-
tained an estimate for the per pack external costs of ciga-
tette smoking well above the average tax on a pack of
cigarettes; when adjusting for tar, he concluded that
current cigarette taxes exceed the external costs of
smoking.

Reducing Tobacco Use

A clear consensus is lacking regarding the opti-
mal tax on cigarettes. Optimal tax calculations from
prevalence-based estimates that include the direct and
indirect costs of smoking-related morbidity and mor-
tality are likely to be inappropriate, because the calcu-
lations include lost productivity and other costs that
should arguably be considered internal costs. Similarly,
optimal tax calculations from the recent incidence-
based estimates probably underestimate the optimal
tax, because these calculations exclude many of the
external costs of smoking. Nevertheless, because of
the growing evidence of the substantial health conse-
quences of exposure to ETS (including fetal and peri-
natal exposure), a tax that would generate sufficient
revenues to cover all external costs from smoking is
likely well above the current average of federal, state,
and local taxes on cigarettes.

Cigarette Taxes and Health

As the review of studies on cigarette demand
demonstrated, increases in cigarette prices lead to sub-
stantial reductions in cigarette smoking by deterring
smoking initiation among youth, prompting smoking
cessation among adults, and reducing the average ciga-
rette consumption among continuing smokers. Be-
cause of the substantial health consequences of
cigarette smoking and the health benefits of smoking
cessation, these reductions in cigarette smoking would
lead to significant improvements in health by reduc-
ing smoking-related morbidity and mortality. Thus,
increases in cigarette excise taxes, which would result
in increases in cigarette prices, would be an effective
policy tool in improving health.

Several recent studies have provided some esti-
mates of the health benefits resulting from cigarette
tax increases. For example, Warner (1986) used pub-
lished estimates of price elasticity (Lewit et al. 1981;
Lewit and Coate 1982) to estimate the impact of higher
cigarette excise taxes on smoking and health. The
study predicted that a sustained, real 15 percent tax-
induced increase in cigarette prices in 1984 (which
would have been equivalent to restoring the federal
tax to its real value in 1951—a nominal tax of 32 cents
per pack) would deter 800,000 young people from
smoking and encourage about 2.7 million adults to
quit. Using the conservative assumption that one of
every four lifelong smokers dies prematurely of a
smoking-related illness, the researchers estimated that
this tax increase would reduce premature deaths
among persons 12 years and older by 860,000.

The GAO (1989) used the same estimates of price
elasticity to predict the health benefits from a sustained,

Economic Approaches 35:
Surgeon General's Report

real tax increase of 21 cents per pack in 1989 (which
they estimated would raise the price by 15 percent).
Using the one-in-four assumptions made by Warner
(1986), the analysis estimated that this tax increase
would reduce the number of youth who smoke by
500,000 and would subsequently reduce premature
deaths from cigarette smoking among youth by
125,000.

Harris (1987) used various estimates of the price
elasticity of demand in an analysis of the health impli-
cations of the 1983 tax hike and corresponding price
increase, The analysis concluded that this tax increase
deterred 600,000 young people from smoking. After
reviewing the epidemiologic literature, Harris esti-
mated that an additional 54,000 young people and a
total of 100,000 people would survive to at least 65
years of age as a result of the tax increase.

Two recent studies directly examined the health
benefits of increases in cigarette excise taxes (Moore
1995; Evans and Ringel 1999). Using annual state-level
death rates from smoking-related diseases (including
heart disease, lung cancer, cardiovascular disease,
mouth and throat cancer, and asthma), the study di-
rectly estimated, through appropriate econometric
methods, the impact of higher taxes on health. The
resulting estimates implied that a 10-percent increase
in cigarette excise taxes would save approximately
5,200 lives annually. Similarly, Evans and Ringel
(1999), using data from the 1989-1992 Natality Detail
files, concluded that higher cigarette taxes would sig-
nificantly improve birth outcomes.

The CSH (1994) analyzed the health benefits of
higher cigarette excise taxes by using relatively con-
servative estimates of the price elasticity of demand
and of deaths related to cigarette smoking. The study
estimated that, based on 1992 taxes and cigarette smok-
ing data, an increase of 75 cents per pack in the federal
cigarette excise would reduce premature deaths by
900,000. The study further estimated that a $2.00
increase would save an additional 1 million lives.

Similarly, Chaloupka (1998) provided estimates
of the effects of alternative cigarette tax and price in-
creases contained in various national tobacco settle-
ment proposals based on Chaloupka and Grossman’s
(1996) econometric analysis of youth smoking. For
example, he estimated that a $1.50 increase in cigarette
taxes and prices, phased in over a relatively short pe-
riod of time and then adjusted for inflation, would re-
duce overall cigarette consumption by approximately
30 percent, while cutting the prevalence of youth smok-
ing nearly in half. Given the CDC’s recent estimate
that 16,620,878 youth in the 1995 cohort of 0- through
17-year-olds would eventually become smokers and

356 Chapter 6

that 32 percent of regular smokers eventually die from
a smoking-related disease, Chaloupka (1998) estimated
that this tax would prevent approximately 2.5 million
premature deaths in this cohort.

The substantial econometric literature clearly in-
dicates that increases in cigarette prices will reduce
both smoking prevalence and average cigarette con-
sumption. Because of the well-documented healti
consequences of smoking, tax-induced increases in
cigarette prices would generate substantial improve-
ments in health. Thus, higher taxes on cigarettes and
other tobacco products appear appropriate from a pub-
lic health perspective. In addition, at a gathering
convened by the CDC to evaluate the criteria for de-
fining an optimal cigarette tax, economists raised two
further reasons for higher cigarette taxes (Warner et
al. 1995). First, to the extent that adolescents and young
adults do not fully understand the addictive nature of
cigarette smoking, the argument could be made that
higher cigarette taxes can reduce smoking by youth
before it is too late for them to quit easily. Second, to
the extent that youth behave more myopically than
adults (in particular, more than the adults that they
will later be), young people are more likely to take on
a habit with long-term health consequences. Thus, by
discouraging smoking, the higher tax can help correct
youth’s myopic behavior.

Although higher cigarette taxes are likely to pro-
duce substantial improvements in health, several fac-
tors could mitigate the impact of these taxes. First, as
the limited research on the demand for smokeless to-
bacco products suggests (Ohsfeldt and Boyle 1994;
Ohsfeldt et al. 1997, 1999), increases in cigarette taxes
not matched by similar increases in smokeless tobacco
taxes may induce people to substitute other tobacco
products with similar health consequences. For ex-
ample, the large increases in Canada’s cigarette excise
taxes and the consequent increases in the differential
between cigarette taxes and taxes on roll-your-own
tobacco led to a sharp rise in the use of the latter (De-
partment of Finance, Canada 1993). This substitution
could easily be avoided by increasing all tobacco taxes
simultaneously. Canada’s experience also raises the
issue of equalized taxes between nations, because
relatively large tobacco tax hikes resulted in a border-
crossing black market in cigarettes and other tobacco
products as well as in other efforts to avoid taxes. Al-
ternatively, as Evans and Farrelly (1998) found, the
higher taxes may lead smokers to change the kinds of
cigarettes they smoke (i.e., they may switch to higher-
tar and higher-nicotine cigarettes), thereby reducing
the health benefits of higher cigarette taxes. The re-
sults of the study by Evans and Farrelly suggest that
taxes based on the tar, nicotine, and carbon monoxide
content of cigarettes (first suggested by Harris 1980)
may be the most appropriate means to address the
public health consequences of smoking.

Of course, cigarettes and other tobacco products
are not the only goods that can be taxed on the basis of
these arguments. Heavy consumption of alcoholic
beverages, for example, also leads to health problems,
unintentional injuries, property damage, and other
consequences. Cook and Moore (1993) provide a de-
tailed discussion of the rationale for higher alcoholic
beverage excise taxes. A number of studies of the “op-
timal” tax on alcoholic beverages have concluded that
current taxes are well below the level that would cover
the social costs of alcohol abuse (Manning et al. 1989,
1991; Saffer and Chaloupka 1994),

Tobacco Taxation and Revenues

An alternative rationale for tobacco taxes is that
they are a relatively simple way to generate revenues.
Even some prominent proponents of the free market
philosophy have supported tobacco taxes to generate
revenues. “Sugar, rum, and tobacco,” wrote Adam
Smith in his 1776 economic treatise, An Inquiry lito the
Nature and Causes of Hie Wealth of Nations, “are commodi-
ties which are no where necessaries of life, which are
become objects of almost universal consumption, and
which are therefore extremely proper subjects of taxa-
tion” (1976, Book V, p. 474).

As described earlier in this chapter (in “Ration-
ales for Tobacco Taxation”), various levels of govern-
ment have long used cigarette and other tobacco taxes
to raise revenues. Such policy is supported by eco-
nomic theory. An economically efficient way to raise
revenues while minimizing the welfare losses associ-
ated with the price distortions resulting from taxes is
to impose relatively higher taxes on goods with more
inelastic demand (one for which the percentage reduc-
tion in demand is smaller than the percentage increase
in price) (Ramsey 1927). As described earlier in this
chapter (in “Effect of Price on Demand for Tobacco
Products”), the numerous studies of cigarette demand
and the limited studies of the demand for other to-
bacco products have implied that overall demand, at
least in the short run, is inelastic. Thus, large increases
in tobacco taxes can generate substantial increases in
revenues, particularly in the short run.

Since 1960, the dollar amount of federal revenues
generated by tobacco taxes has increased significantly,
trom $1.9 billion to nearly $5.9 billion in 1997. Over
this same period, state revenues from tobacco have also
increased significantly in nominal terms, from slightly

Reducing Tobacco Use

less than $1 billion to more than $7.5 billion. As new
sources of tax revenues have been identified, however,
tobacco revenues have constituted a smaller propor-
tion of total revenues. Tobacco taxes accounted for
3.36 percent of all federal revenues in 1950, but they
were only 0.44 percent of revenues in 1989 (CBO 1990).
Similarly, total federal tobacco tax revenues as a share
of the gross national product fell from 0.55 percent in
1950 to 0.08 percent in 1989.

Merriman (1994) considered whether cigarette
excise taxes are set to maximize the revenues from
these taxes. More specifically, Merriman tested the idea
that elected officials, in an effort to maximize their own
utility, may increase taxes on some goods to the point
where revenues from these taxes begin to decline
(Buchanan and Lee 1982). Using published estimates
of cigarette demand (Becker et al. 1994), the study
found that cigarette excise taxes in every state were
well below the revenue-maximizing level of these
taxes, at least as of 1985. Furthermore, these estimates
of the marginal revenue effects of higher taxes were
lower-bound estimates, because they held constant
other states’ taxes (a consideration that allowed for
increases in the casual and organized smuggling of
cigarettes in response to a tax hike in a given state).
Coordinated state tax increases, asa result, would gen-
erate even higher revenues.

Grossman (1993) considered this issue of maxi-
mizing the federal excise tax on cigarettes. Using pub-
lished estimates of cigarette demand (Chaloupka 1991;
Becker et al. 1994), Grossman predicted that in the long
run, a real federal tax rate of $1.26 would maximize
federal tax revenues at $16 billion and would gener-
ate even larger immediate increases in revenues. Like-
wise, Becker and Grossman (1994) suggested that the
long-run revenue-maximizing value of the federal ciga-
rette excise tax is 95 cents per pack in 1994 dollars.
This tax would generate approximately $12 billion in
total revenues and would raise considerably more than
in the short run. These estimates were consistent with
the prediction that a sustained real increase of 75 cents
in the federal tax on cigarettes would in the long run
lead to a net increase in cigarette tax revenues of just
over $16 billion (Gravelle and Zimmerman 1994).

Other studies, however, have predicted that
higher federal taxes would generate much greater rev-
enues (Harris 1994; Womach 1994a). For example,
Harris has predicted that raising the federal tax to $2.00
per pack would have generated nearly $20 billion in
additional revenues annually, on average, from 1995
through 1999, whereas Chaloupka (1998) estimates that
a $1.30 increase would, in the short run, raise $22.5
billion annually.

Economic Approaches — 357
Surgeon General's Report

The differences among the predicted revenue ef-
fects of higher cigarette taxes may be attributed to dif-
ferent assumptions used to obtain these estimates as
well as to differences in the period for which the pre-
dictions are made. For example, two studies (Gross-
man 1993: Becker and Grossman 1994) have assumed
a linear demand function for cigarettes. One of the
implications of this function is that the price elasticity
of demand rises as price rises. Thus, when the effects
of a large increase in the cigarette excise tax are pre-
dicted, cigarette demand is assumed to become more
responsive to price. This assumption implies that there
is an inverted L-shaped relationship between cigarette
taxes and revenues: increasing cigarette taxes from
relatively low levels will initially lead to increased rev-
enues; beyond some point, further increases in taxes
will lead to even larger reductions in demand, thereby
causing revenues to fall. The same basic argument is
implicit in the well-known Laffer curve, which relates
income tax rates to income tax revenues.

The assumption of a linear demand function for
cigarettes is in contrast to the assumption made by
some other analysts that the price elasticity of demand
is constant over the range of prices under consider-
ation. Because almost all of the studies described in
this section found that the demand for cigarettes is
inelastic, the assumption of a constant elasticity im-
plies that even very large increases in taxes will al-
ways generate large increases in revenues.

The differences in revenues predicted by these
two assumptions, although only minor when analy-
ses predict the impact of relatively small cigarette tax
increases, grow with the size of the tax increase. Be-
cause either assumption could be questioned, the rev-
enue effects of a tax increase will likely fall somewhere
between the predictions obtained from the two
(Grossman et al. 1993). The limited evidence trom the
behavioral economics literature suggests, however,
that the effects of large increases in cigarette prices will
lead to larger reductions in cigarette demand than pre-
dicted by the assumption of a linear demand function
(Bickel et al. 1991),

A second key factor leading to the differences
discussed here is the distinction between the short-run
and long-run effects of the tax hikes. Economic theory
implies that the demand for most consumer goods will
be more responsive to price in the long run than in the
short run. For cigarettes and other tobacco products,
additional factors increase the likelihood that the long-
run effects of an increase in price on cigarette demand
will exceed the short-run effects—that is, price elastic-
ity will increase in a manner similar to the increase for
other, nonaddictive goods and services. Increased

358 = Chapter 6

cigarette taxes will thus lead to smaller increases in
revenues in the long run than in the short run.

That adolescents and young adults are more re-
sponsive to prices than older adults are and the fact
that cigarette smoking is an addictive behavior are of
particular importance when predicting the short-run
and long-run revenue effects of higher cigarette taxes.
Age difference in price elasticity implies that sustained
real tax increases will lead to greater reductions in
smoking prevalence and consumption as the number
of adolescents and young adults who have not yet
decided to smoke replaces the number of older adults
who already smoke. The assumption of addiction
implies that price has a cumulative effect on consump-
tion: the price increase immediately reduces current
consumption by discouraging young people from ex-
perimenting or continuing to experiment with smok-
ing, as well as by encouraging current smokers to
smoke less; future consumption is then reduced by the
continuously fewer current smokers who also continue
to smoke less in the face of a sustained real increase in
price. The cumulative effect of price on consumption
thus exceeds the immediate effect. This sequence ulti-
mately leads to reduced revenues.

In summary, federal and most state excise taxes
on cigarettes are undoubtedly well below their revenue-
maximizing levels. Thus, relatively large increases in
these taxes would lead to substantial gains in revenues,
particularly in the short run. Moreover, because of the
relatively inelastic demand for cigarettes, increases in
cigarette taxes are an economically efficient means of
generating substantial revenues while imposing rela-
tively small welfare losses. But if there is little argu-
ment that large increases in cigarette taxes would
generate substantial increases in tax revenues in the
short run, there are some questions on the revenue-
maximizing values of these taxes and the long-run
stability of revenues generated by large increases in
cigarette taxes.

Part of the difficulty in estimating the effects of
large taxes on cigarettes is that there is little experience
in the United States with relatively large increases. Simi-
larly, it is unlikely that the long-run effects of the more
recent large tax increases have been fully played out.
The short-term experience in Canada is of limited use
in addressing these issues. Cigarette taxes in Canada
increased more than 500 percent between 1982 and 1992,
which increased real cigarette prices by 170 percent, and
total smoking fell by 38 percent (Gweanor and Martial
1994). Because of the effects of other, contemporane-
ous activities to reduce tobacco use, the impact of the
large price increases on smoking were consistent with
the estimates from the studies of U.S. cigarette demand
described in this chapter. Moreover, total federal and
provincial revenues generated by Canadian cigarette
taxes were 240 percent higher in 1992 than in 1981 even
with the concomitant considerable black market in

Conclusions

Reducing Tobacco Use

cigarettes. This experience suggests that large increases
in cigarette taxes in the United States would generate
sizable tax revenues for many years.

 

1. The price of tobacco has an important influence
on the demand for tobacco products, particularly
among young people.

to

Substantial increases in the excise taxes on ciga-
rettes would have a considerable impact on the
prevalence of smoking and, in the long term, re-
duce the adverse health effects caused by tobacco.

3. Policies that influence the supply of tobacco, par-
ticularly those that regulate international com-
merce, can have important effects on tobacco use.

4. Although employment in the tobacco sector is
substantial, the importance of tobacco to the U.S.
economy has been overstated. Judicious policies
can be joined to higher tobacco taxes and stron-
ger prevention policies to ease economic diver-
sification in tobacco-producing areas.

Economic Approaches 339
Surgeon General's Report

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Economic Approaches 369
Chapter 7
Comprehensive Programs

Introduction 373
Conceptual Frameworks 373

Description of Comprehensive Programs 374

Program Goals for Reducing Tobacco Use Statewide 374
Program Components for Reducing Tobacco Use Statewide 375

Community Intervention Trials 376

Statewide Interventions 382

Community Mobilization 382
National Programs 383
ASSIST 383
IMPACT 384
SmokeLess States Program 384
National Programs to Reduce Youth Access to Tobacco 384
States Currently Funded in the Nationwide Program to Reduce Tobacco Use 385
Examples of Major State Programs 385
Minnesota 386
California 387
Massachusetts 389
Arizona 391
Oregon 392
Maine 393
Programs Funded by State Settlements With the Tobacco Industry 394
Mississippi 394
Florida 395
Texas 397
Minnesota Settlement Program 397
Programs Meeting the Needs of Special Populations 398
Programs for the African American Community 398
Programs for Women 400
Federal and State Programs 4017
Religious Organizations 401
Special Efforts to Reduce Chewing Tobacco Use 402

Components of Community Programs 403

Community Advocacy and Mobilization 403
Electronic Networking 403
Direct Advocacy 405
Media Advocacy 407
Countermarketing 409
Summary +416
Conclusions +417

References 418
Introduction

Reducing Tobacco Use

 

Acomprehensive approach to reducing tobacco
use recognizes that individual behavioral choices
occur in a larger, complex context: a social setting of
family, community, and culture; a complex economic
and physical environment; formal and informal gov-
ernment policy; and the prevailing legal atmosphere
(Green and Richard 1993). The specific programs re-
viewed in prior chapters can be better understood as
part of a general framework for health promotion
(World Health Organization [WHO] 1986; Health
Promotion linternational 1997). Using such a frame-
work, this chapter will review community-based
intervention studies and the current models for com-
prehensive tobacco prevention and control that are
funded by specific excise taxes or by settlements with
the tobacco industry.

The evaluation of multicomponent interventions
and socioecological models of health promotion poses
a special problem (Green and Kreuter 1991; Sanson-
Fisher et al. 1996; Nutbeam 1998). The most effective
models of health promotion are social movements that
evolve (Kickbusch 1989; Allison and Rootman 1996;
Downie et al. 1996; Nutbeam 1998). Thus, the nature
and complexity of health promotion interventions do
not fit the tightly defined, controlled, and presumably
reproducible research model that is more suitable for
epidemiologic testing (Elder et al. 1993; Mittelmark et
al. 1993; Baum 1995; Allison and Rootman 1996;

Conceptual Frameworks

Macdonald et al. 1996; Nutbeam 1996, 1998). None-
theless, surveillance data, periodic surveys, and other
administrative data from multiple sites permit these
interventions, as well as “natural experiments,” to be
studied. Traditionally, per capita consumption data,
adult prevalence surveys, and surveys of tobacco-
related behaviors among young people have been the
core of this surveillance approach. Recently, a broader
array of legislative, economic, media, and program
data has emerged to enhance surveillance of the social
environments that influence the use of tobacco prod-
ucts. For example, the WHO's Guidelines for Control-
lntg and Monitoring the Tobacco Epidemic (WHO 1998)
provides detailed recommendations on the types of
data that should be monitored for both planning and
evaluating tobacco control efforts. For the United
States, the Centers for Disease Control and Prevention
(CDC) has published background information on
sources of national surveillance data (Giovino et
al. 1994). The Federal Trade Commission provides
annual estimates of trends in the tobacco industry’s
advertising and promotion expenditures. Surveillance
data on protobacco influences are not well monitored,
however, particularly at the state level. Finally,
Wakefield and Chaloupka (1999) have provided a con-
ceptual framework for the monitoring of comprehen-
sive tobacco control programs, particularly those that
focus on preventing teenage smoking.

 

From its formation in the mid-1970s, health pro-
motion has emerged as an approach that offers greater
potential for change in the health-related behavior
of populations than does health education (Green
and Richard 1993; Downie et al. 1996; Health Promto-
tion International 1997). Health promotion emphasizes
social, economic, and other environmental influences
as the primary determinants of health behavior change
(WHO 1986; Downie et al. 1996; Health Promotion
International 1997). Though such health promotion
strategies have been characterized as a new approach

to public health, ecological and policy-oriented
approaches are similar to the public health methods
of the latter part of the 19th century and the early de-
cades of the 20th century (Kickbusch 1989; Green and
Richard 1993; Mullan 2000). As the role of individual
risk behaviors, such as tobacco use, was increasingly
understood in the middle of the 20th century, individu-
ally focused educational] strategies gained primacy
(Green and Richard 1993). These strategies produced
some important changes in health behaviors, but their
limits were realized in the cardiovascular disease

Comprehensive Programs — 373
Surgeon General's Report

prevention programs that took place in the United
States during the 1970s and 1980s (see “Community
Intervention Trials,” later in this chapter) (Green and
Richard 1993; Luepker 1994; Winkleby 1994; Fisher
1995; Schmid et al. 1995; Susser 1995).

The shift from a health education approach that
targets the individual to a health promotion approach
that uses social, policy, and environmental strategies
has several advantages. First, by recognizing that
many environmental determinants of health behavior

Description of Comprehensive Programs

are not under the direct control of the individual, the
ecological focus avoids blaming persons who fail to
modify their behavior. Second, many educational
strategies are more effective with better-educated,
wealthier persons and may thereby increase the dis-
parities in health between population groups and fail
to reach those in greatest need. Third, regulatory and
policy interventions can be more cost-effective than
multiple efforts to modify individual behavior.

 

The importance of comprehensive economic,
policy, and regulatory interventions to reduce tobacco
use has long been recognized by international experts
(WHO 1979). For example, the evolving WHO guide-
lines for such interventions have increasingly empha-
sized policy and legislative measures, stressing that
these types of health promotion and health protection
strategies are essential elements of any national effort
to reduce tobacco use (WHO 1998). In an extension
of the WHO's efforts, the National Cancer Institute
(NCI) released a blueprint for related public health ac-
tion in the United States (NCI 1991). This monograph
stressed that the application of social environmental
approaches should not compete with individual ap-
proaches but should be combined synergistically with
them. Similarly, the Center for Substance Abuse Pre-
vention (CSAP) of the Substance Abuse and Mental
Health Services Administration (SAMHSA) published
guidelines that provide the concept, structure, and
operations of a community-based approach to reduce
tobacco use among vouth (SAMHSA 1998a,b). To fur-
ther help states overcome common obstacles to
enforcing youth access laws, CSAP also has provided
a document that provides strategies to address prob-
lems such as interagency and intraagency issues, in-
sufficient or uncoordinated resources, or lack of data
sources (U.S. Department of Health and Human Ser-
vices [USDHHS] 1999). More recently, the CDC (1999a)
has synthesized a comprehensive framework for state-
wide programs to reduce tobacco use. This framework
integrates four program goals with four program com-
ponents; optimally, each of the goals would be fully
addressed in the implementation of each of the com-
ponents. The framework, described in the next sec-
tion of this chapter, recognizes that comprehensive pro-
grams will continue to evolve, in response both to new

374 Chapter 7

information and to new circumstances. In addition,
the framework represents a distillation of evidence and
judgment that have been discussed in detail in the ear-
lier chapters of this report and that have been tested
in the community-based trials and the comprehensive
programs discussed later in this chapter.

Program Goals for Reducing Tobacco
Use Statewide

1. Prevent initiation among young people. The
hallmarks of this goal are

¢ Decreasing young people’s access to tobacco
products.

* Increasing prohealth messages.

¢ Reducing protobacco messages.

* Increasing the price of tobacco products.

Some of the mechanisms for decreasing
young people’s susceptibility to tobacco use are
promoting youth empowerment activities,
providing school health education, offering
positive alternatives, deglamorizing tobacco use,
and involving parents and families.

2. Promote quitting among adults and young
people. An environment that supports efforts to
quit using tobacco can be fostered by

* Increasing access to culturally appropriate,
effective cessation services (e.g., by expanding
insurance coverage).

¢ Increasing the price of tobacco products.

* Increasing restrictions on environmental
tobacco smoke (ETS).
* Increasing prohealth messages.
¢ Decreasing protobacco messages.

Eliminate exposure to ETS. The continued ex-
pansion of policies to eliminate exposure to ETS
can be achieved by

° Developing support for implementation.

¢ Enforcing voluntary private policies.

* Enforcing public policy and public regulation.
° Expanding coverage of public areas.

Identify and eliminate disparities among popula-
fion groups. Intrinsically linked to achieving the
first three goals, eliminating disparities entails

* Increasing the price of tobacco products
through culturally acceptable programs.

e Decreasing exposure to ETS.

* Increasing prohealth messages.

* Decreasing protobacco messages, particularly
those aimed at population subgroups.

* Increasing the availability of culturally
acceptable cessation services.

* Increasing protective factors among young
people.

* Decreasing young people’s access to tobacco
products.

Development, funding, and implementation
of the major elements—some of which appear in
several of these goals—are critically linked to com-
munity involvement and, as noted, toa culturally
appropriate approach.

Program Components for Reducing
Tobacco Use Statewide

1.

Community interventions. Working through
social organizations, systems, and networks
promotes an environment that facilitates indi-
vidual health choices and establishes freedom
from tobacco use as the norm. The term “commu-
nity” encompasses a diverse set of entities, includ-
ing medical societies; schools; school districts;
departments of education; voluntary health agen-
cies; civic, social, and recreational organizations;
businesses and business associations; city and
county governments; public health organizations;
labor groups; managed care systems; faith com-
munities; and organizations for racial and ethnic
minority groups.

Community-based activities can include sup-
porting legislated removal or restriction of stimuli
to use tobacco (such as advertising and promotion,

N

Reducing Tobacco Use

€asy access to tobacco products via self-service
display and vending machines, and ongoing ex-
posure to ETS) as well as providing positive alter-
natives (such as promoting cessation, encouraging
prevention advocacy, developing role modeling
through parents and adults, and fostering youth
empowerment). By changing the community set-
ting and institutions with which adults and young
people interact, community-based activities work
to denormalize, deglamorize, and discourage to-
bacco use and to provide access to resources that
increase users’ abilitv to control their addiction and
use of tobacco. This approach has the potential to
effect substantial, sustained, populationwide
change in tobacco use behavior.

Countermarketing. Changing a social environ-
ment that fosters a norm of tobacco use is an
essential element of national, state, and local pro-
grams. This change requires strategies to counter
the billions of dollars spentin advertising and pro-
motion that reach young people and adults with
misleading images about tobacco. Countermarket-
ing efforts can include using media advocacy, paid
media, and counteradvertising; increasing
prohealth promotions and sponsorships; and pro-
viding information on the tobacco industry’s mar-
keting and promotional tactics. These public
health messages should use a strategy that targets
all age groups and populations. Ina comprehen-
sive strategy, education messages will be mutu-
ally reinforcing: clean indoor air messages will
provide added motivation for adults to quit smok-
ing; cessation messages for adults will discourage
tobacco use among young people and accentuate
the problem of addiction; and youth prevention
messages will increase the salience of the tobacco
issue among parents and community leaders.

Program policy and regulation. Areas in which
policy and regulation to reduce tobacco use have
been applied include minors’ access, tobacco pric-
ing, advertising and promotion, clean indoor air,
product regulation, product labeling, ingredient
disclosure, and policies on insurance coverage
for cessation services. Policies and regulations can
be established at the federal, state, and local lev-
els (see Chapter 5). Ideally, policies and regula-
tions need to be implemented at both the
community level and statewide. Educating the
public about policies and regulation is crucial
to acceptance, but such education must be sup-
ported by adequate enforcement.

Conmtprehensive Programs — 375
Surgeon General’s Report

4. Surveillance and evaluation. Surveillance and
evaluation efforts are necessary to make the
ongoing refinements that lead to more effective pre-
vention strategies. In addition to traditional
surveillance methods, nontraditional approaches—
such as monitoring the promotional activity of the
tobacco industry at the state and local levels, moni-
toring the economic impact of smoking laws and
other ETS policies, and performing periodic surveys
of public opinion on program interventions—are
critical for reducing tobacco use.

The conceptual framework for comprehensive
efforts to reduce tobacco use has been used to
develop the current generation of statewide programs.
However, even the most comprehensive programs

Community Intervention Trials

currently in place have not been able to fully imple-
ment all recommended components. Policy and regu-
lation components are especially hampered, since
many state and local actions are limited by federal
mandates and preemptions (see “Preemption of Local
Action by State Policy” in Chapter 5). Moreover, only
two states, California and Massachusetts, have imple-
mented comprehensive programs for a sufficient time
to provide evaluation data on the overall efficacy of
the emerging comprehensive model.

The following sections summarize the history
and development of community-based, statewide, and
other large-scale efforts to reduce tobacco use and con-
clude with a review of existing data on the efficacy of
the comprehensive model.

 

Large-scale trials to prevent cardiovascular
disease have been a major source of data on population-
based approaches to reducing tobacco use. An empha-
sis on the importance of addressing social and cultural
determinants of smoking behavior grew directly out
of early work on cardiovascular disease epidemiology.
The Seven Countries Study, which was started in the
mid-1950s by Keys and colleagues (Aravanis et al. 1970;
Blackburn et al. 1970; Buzina et al. 1970; Fidanza et al.
1970; Kimura and Keys 1970; Taylor et al. 1970a,b),
examined risk factors for cardiovascular disease in
populations around the world and documented that
disease rates and risk factors differed markedly across
cultural and social environments (WHO 1982). In that
study, more than 12,500 men aged 40-59 years from
Finland, Greece, Italy, Japan, the Netherlands, the
United States, and Yugoslavia were recruited for a pro-
spective study of the relationship between personal
behaviors (e.g., diet, physical activity, smoking) and
risk of cardiovascular disease (Aravanis et al. 1970;
Blackburn et al. 1970; Buzina et al. 1970; Fidanza et al.
1970; Kimura and Keys 1970; Taylor et al. 1970a,b). Al-
though the most striking differences in lifestyle across
cultures were in the composition of the men’s diet,
smoking was found to bea significant risk factor. This
study, and many other early studies of cardiovascular
disease epidemiology, encouraged researchers to start
community trials to modify the identified risk factors
in whole population groups (WHO 1982).

376 Chapter 7

Two landmark community trials that began
in 1972 grew directly out of the work of the Seven Coun-
tries Study investigators: the Stanford Three-Commu-
nity Study (Farquhar et al. 1977) and the Finnish North
Karelia Study (Puska et al. 1985). A third, less directly
tied to this early work, was the Israeli Community Syn-
drome of Hypertension, Atherosclerosis and Diabetes
(CHAD) program (Gofin et al. 1986) begun in 1971. In
addition, two worksite trials focusing on population-
level changes in cardiovascular disease risk factors
developed out of the Seven Countries Study and from
related early work on cardiovascular disease epidemi-
ology: the Belgian Heart Disease Prevention Project
(Kornitzer et al. 1980) and the United Kingdom Heart
Disease Prevention Project (Rose et al. 1980). Though
investigators in these initial studies recognized the im-
portance of the social and cultural environment in
modifying risk factors for cardiovascular disease, in-
cluding smoking (Farquhar 1978; WHO 1979; Farquhar
etal. 1981, 1985; Rose 1981; McAlister et al. 1982; Puska
et al. 1985), the smoking cessation techniques of the
time were primarily individually oriented (McAlister
et al. 1976; Meyer et al. 1980).

The Stanford and North Karelia studies shared
some community organizing and conceptual perspec-
tives in their planning (WHO 1982). Logistical and
cultural differences between the United States and Fin-
land dictated significantly different implementation,
however. In the Stanford study, an intervention that
primarily used mass media was compared with the
same mass media intervention plus intensive face-to-
face counseling for high-risk individuals and was also
compared with a control community that received no
intervention. In the initial results, the community
cohort receiving both the mass media and the face-to-
face counseling for high-risk smokers had a signifi-
cantly greater decrease than the control community in
the prevalence of smoking (-50 vs. -14.9 percent) and
in the number of cigarettes smoked (percentage reduc-
tion of 51.6 vs. 21.0 percent) (Farquhar et al. 1977, 1985;
Maccoby et al. 1977; Meyer et al. 1980).

In the Finnish study, the people of North Karelia
province requested the intervention because of concerns
raised by the results of the Seven Countries Study, in
which residents of their province had participated
(Puska et al. 1985, 1995). The intervention had a strong
focus on community organizing and environmental
modification, together with multiple educational com-
ponents using mass media and other strategies
(McAlister et al. 1982; Puska et al. 1985). Although the
intervention’s early efforts had a greater emphasis on
increasing direct cessation services than on prevent-
ing smoking, the importance of nonsmoking environ-
ments and other environmental changes was clearly
recognized and emphasized (Koskela 1981). The five-
year follow-up results of the study found no signifi-
cant difference in smoking prevalence between the
North Karelia province and Kuopio, a comparison
province with similar baseline smoking rates (Puska
et al. 1979). Ten years on, a significantly greater re-
duction in smoking prevalence was observed among
men in North Karelia than in Kuopio (Salonen et al.
1981; Puska et al. 1983a,b; Vartiainen et al. 1986). The
intervention trial has been continued, and new pre-
vention and population-based cessation strategies
have been added (Vartiainen et al. 1986; Korhonen et
al. 1992, 1993). Analyses of 20-year trends (from 1972
to 1992) in smoking in the two provinces found a sig-
nificantly greater decline in smoking prevalence for
adult men in North Karelia (from 52 to 32 percent) than
in Kuopio (50 to 37 percent) and in southwestern Fin-
land. Smoking prevalence for adult women increased
at similar rates in both provinces (increasing from 10
to 17 percent in North Karelia and from 11 to 19 per-
cent in Kuopio) (Vartiainen et al. 1998). The 20-year
difference in trends in men between the two provinces
appeared to be primarily related to cessation during
the first 10 years and to prevention during the last 10
years.

The CHAD program had a somewhat more indi-
vidually focused intervention model directed at reduc-
ing the risk factors for cardiovascular disease among

Reducing Tobacco Use

residents in Israeli housing projects (Abramson et al.
1981). The health care providers serving the interven-
tion communities provided risk factor screening and
counseling for families, couples, and individuals liv-
ing in the four adjacent housing projects. The resi-
dents of comparison housing areas received usual care
from their providers. In the intervention communi-
ties, group discussions were held to provide social
support and increase group influences on individual
lifestyle changes. Comparisons between community
health surveys conducted at baseline (1969-1971) and
after five years (1975-1976) showed a significantly
greater decline in smoking prevalence among men but
not among women in the intervention communities
than in control communities (Gofin et al. 1986). At the
10-year follow-up (1981), the prevalence of smoking
had declined significantly between 1976 and 1981
among both men and women in the CHAD follow-up
cohort, whereas no change or a slight increase in smok-
ing had occurred among adults in Israel overall (Gofin
et al. 1986).

The Belgian Heart Disease Prevention Project was
a controlled, multifactorial trial involving men aged
40-59 years at baseline at Belgian worksites (Kornitzer
et al. 1980). Thirty pairs of factories were studied, with
one site from each pair randomly assigned to the in-
tervention group and one site to the control group. At
baseline screenings for risk factors for cardiovascular
disease, individuals in the upper two deciles of risk
were identified and received semiannual individual
counseling from the medical staff. Medical advice to
quit smoking was reinforced in the factories by anti-
smoking posters, written messages, and health educa-
tion conferences encouraging workers to quit smoking
and to encourage the same to their friends who smoked.
Changes in smoking prevalence at the intervention and
control worksites were monitored among both the
high-risk individuals and in random samples of the
total worksite populations. After two years of inter-
vention, a significantly greater percentage of the high-
risk smokers quit in the intervention group than in the
control group (18.7 vs. 12.2 percent), but no difference
was observed in the random samples.

The United Kingdom Heart Disease Prevention
Project was started in 1971 with 24 pairs of English
and Welsh factories. Each member of the pair was ran-
domly assigned to intervention or control status (Rose
et al. 1980; Bauer et al. 1985). At baseline and in 1977-
1978, risk factor screening for cardiovascular disease
was conducted among men aged 40-59 years in the
intervention sites and in a 10-percent random sample
of similarly aged men at the control sites. Over a five-
to six-year period, all men in the intervention sites

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