Freedom in the 50 States

The tobacco freedom category represents a higher share of the index than in previous editions. Part of the reason for this is the gradual addition of new variables: minimum smoking age of 21 and vaping laws. But a big part of it is the increase in the variance of policies. Until the late 2010s, no state had a minimum smoking age of 21; now that policy is federally mandated. In our weighting scheme, an increase in the variance of a policy increases its weight, which is how it should be, because it means that unit of change affects people more.

In this category, we consider (a) the effect of cigarette taxes, (b) flavored electronic cigarette sale bans, (c) minimum legal sale age of 21, (d) smoking and vaping bans in privately owned workplaces, restaurants, and bars, (e) vending machine bans, and (f) internet sales regulations on freedom.

Cigarette taxes are the most important variable in this category. A $1-per-pack tax increase is associated with about a 16.7 percent increase in the price of a pack.¹ Nobel Prize–winning economist Gary S. Becker and his colleagues calculated that the long-run price elasticity of demand for cigarettes is about −0.75.² In 2010, 303 billion cigarettes were sold in the United States, typically at 20 cigarettes per pack.³ These facts are sufficient to calculate the deadweight loss (dividing by 2 under the assumption of perfectly elastic supply) and the total cost to consumers. As with alcohol taxes, we divide the latter element by 2.5 to capture the fact that taxes have the conditional consent of some taxpayers, but not by 4 as we did for general taxes (see discussion in the “Fiscal Policy” section), because “sin taxes” disproportionately hit these products’ consumers, who are more likely to be opposed to high taxes on the goods they consume.

Economics professor Michael L. Marlow examined the consequences of Ohio’s comprehensive smoking ban for its losers. State and local governments issued 33,347 citations, with an average expense of about $1,250 per citation (given that each cited location averaged about five citations).⁴ Extrapolating from Ohio’s population supplies the national numbers for the freedom index.

The second set of costs from smoking bans has to do with lost business and the associated disutility to smokers. There is an unfortunate lack of good studies with quasi-random treatment; however, a reasonable assumption is that the costs of bans must be at least as high as (and possibly much greater than) the fines that establishments are willing to risk to allow smoking on their premises. Thus, a simple approach is to multiply an estimate of this amount by 2.5, assuming that the lost revenue is slightly greater than the fines that businesses are willing to incur. Because bars are affected by smoking bans much more than restaurants and workplaces are, we assign 80 percent of the weight to smoking bans in bars and 10 percent each to restaurants and workplaces.

Banning 18- to 20-year-olds from buying tobacco products nationwide could have eliminated about $2.4 billion of annual sales. Assuming the price elasticity of demand is –0.2, the lost consumer surplus is about 2.5 times that.

Flavored electronic cigarette bans reduce overall e-cigarette sales. Because of technological change, we apply a time-varying weight. Massachusetts’s flavored vape ban appears to have reduced sales 24 percent.⁵ Another economic impact study predicts a more than 58 percent drop in sales from a federal ban.⁶ We average these figures to get a cross-elasticity of substitution of −0.41. We consider both the lost consumer surplus and the deadweight loss of a flavor ban. According to one source, the U.S. e-cigarette market was worth $12.8 billion in 2020.⁷ The vape market was about $2.5 billion in 2014.⁸ It apparently doubled each year between 2010 and 2014, and we assume it doubled back to 2008, which we use as the first year of vaping. In the preregulation era, nontobacco flavors made up to 86 percent of vape sales.⁹ Recently, federal regulation has driven nonmenthol and nontobacco flavors out of the market. E-cigarette sales remain strong, suggesting that flavor bans are not nearly as severe as total bans. However, flavor bans do seem to drive youth toward cigarette smoking.¹⁰

Vending machine bans, vaping bans, and internet sales regulations are together worth less than 0.1 percent of the index.