Tobacco, Taxes, and (Passive) Smokers

The Curse of the “Marlboro Men”

Who doesn't remember the Marlboro cowboy?

21st century. The year 2020. Perhaps not many people remember it.

In any case, who was the Marlboro cowboy?

The Marlboro Man was one of the most recognizable advertising figures in the tobacco industry (a phenomenon similar to Ronald McDonald’s in the hamburger industry) for several decades of the last century. He starred in countless commercials for the cigarette brand of the American tobacco giant Philip Morris.

In the various versions produced, the character appeared smoking a cigarette of that brand, set against scenes of joy and good fortune. Several actors portrayed the famous cowboy, who for a long time helped keep Marlboro among the most valuable brands in the tobacco industry.

Over time, however, a number of curious (and tragic) events occurred that were later dubbed “the curse of the Marlboro men.” Several of the actors who portrayed the famous cowboy ended up dying from causes related to tobacco use: lung cancer, chronic pulmonary insufficiency, and others.

These ironic events, naturally, sparked controversies surrounding tobacco, campaigns to reduce its use, and public policies aimed at raising awareness about the problems associated with smoking. In short, “the curse of the Marlboro men” fueled the debate over the harms of this vice and the potential solutions to this problem, which became a matter of public interest.

Excise Tax and (Passive) Smokers

By the way… what do taxes have to do with smoking?

And more importantly… who cares?

Let's take it one step at a time.

First. Taxes and tobacco.

Some of the government’s efforts to address the health problems caused by tobacco use were supported through taxation. Several countries around the world (including ours) have taxed tobacco use as a way to influence people’s “incentives”; as a result of the tax, they would face a higher price for the product. Higher prices lead to lower consumption. This is known as the “extra-fiscal function” of taxes—that is, a purpose beyond the fiscal one (raising funds for the government).

In our country, this type of tax is called the Selective Consumption Tax (ISC), and it is levied on the consumption (technically, the sale) of various products, including cigarettes, high-calorie foods, and alcoholic beverages, among others.

As you may have guessed, the main purpose of this tax is to discourage the consumption of these products, which are considered harmful to health—and, therefore, to society. Additionally, it serves to raise funds for the government. And if we recognize that these types of products are harmful to health, then it makes sense to raise funds to ensure a better-prepared healthcare system. The allocation of these funds, however, is a more complex and controversial issue.

Second. Why is it important?

The importance of this tax lies in its powerful ability to influence the behavior of a society’s members through a simple adjustment (the tax rate) that affects the price and, as a result, encourages or discourages consumption.

And of course, changing the behavior of others is an issue that concerns us all. Or have you (if you don’t smoke, of course) never been annoyed by a smoker who, in the same space, turned you into a passive smoker with potential health risks?

The ISC has the valuable ability to influence, both directly and indirectly, the behavior of others, the behavior of the economy, and the functioning of society. Strictly speaking, we are all “passive smokers” of the ISC. Whether it goes up or down, it affects us—whether we like it or not, even if it seems irrelevant to us.

As we have seen, this tax has the potential to encourage smuggling (if the tax rate is very high) or to stimulate consumption (if the rate is very low). Evidence of this is the smuggling that occurs along the border between Paraguay and Brazil. In our country, the tax rate is low (18–24 %) compared to that of our neighboring country (60 %). When Brazil sets a high tax rate that causes prices to rise excessively, the conditions are ripe for informal consumption to flourish. Smuggling is welcome.

Conversely, several countries, including ours, have adopted measures to encourage consumption and revive the economy during the pandemic by temporarily reducing sales tax rates.

In short, the ISC is a powerful tool for regulating behavior that is often overlooked, and whose non-fiscal function can lead to fundamental changes in our behavior, such as the appealing (but harmful) habit of smoking a cigarette.

After all, no one wants to be part of the exclusive “Marlboro Men” club… or do they?