CVS’s decision to stop selling cigarettes is a smart one. Cigarette sales are incompatible with the company’s positioning as a health care provider. With the reduction of smoking rates, growing restrictions on where people can smoke, and increasing numbers of localities banning cigarette sales in drug stores it will probably make business sense over time as well.
I’ve been surprised that so much of the commentary on CVS’s decision has focused on what else the company should stop selling. Candy, gum and soda are bad for you, too, so maybe CVS should stop selling that. And the list goes on from there –maybe some of their toys are dangerous, for example.
Asking what else CVS should stop selling is asking the wrong question. Cigarettes cause an order of magnitude more harm than those other categories and are more addictive. That’s a good reason to stop selling smokes without having to stop selling other things that aren’t 100 percent healthy.
I’d like to see a bigger emphasis on reducing the availability of cigarettes more broadly and making them more expensive.
Cigarette taxes vary wildly by state. Missouri is the lowest at $0.17 per pack and New York is the highest at $4.35. (New York City tacks on an additional $1.50.) The federal tax is $1.01 and some places add other taxes including state and local sales tax. The average retail price for cigarettes is about $6, so tax represents a big part of the price.
These big differences provide a major incentive for smuggling. Although no one knows exactly what percentage of cigarettes are smuggled, it’s a lot.
Indian reservations are another source of low-tax cigarettes. High tax states like New York have seen considerable friction as non-Indians have sought out on-reservation stores for bargain prices.
The effects can be insidious. A friend told me recently about a public housing project in his area where a man goes door to door selling cigarettes he obtains cheaply on a nearby reservation. If the price were higher the rate of smoking in this price sensitive population would be likely to decline.
I’m not proposing a specific mechanism to address these challenges, but I would like to see the low tax states raise their tax rates, more enforcement effort devoted to stopping interstate smuggling, and more aggressive action to reduce the availability of reservation cigarettes. Although this will never happen, one approach could be fore the federal government to charge a tax of $6 minus whatever the states charge. That would provide an incentive for every state to raise the tax to a uniform, high amount.February 11, 2014