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Atlanta Fed Working Papers

Smoking: Taxing Health and Social Security

Brian S. Armour and M. Melinda Pitts
Working Paper 2006-12
September 2006

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While the health risks associated with smoking are well known, the impact on income distributions is not. This paper extends the literature by examining the distributional effects of a behavioral choice, in this case smoking, on net marginal Social Security tax rates (NMSSTR). The results show that smokers, as a result of shorter life expectancies, incur a higher NMSSTR than nonsmokers. In addition, as low-earnings workers have a higher smoking prevalence than high-earnings workers, smoking works to widen the income distribution. This higher tax rate could have implications for both labor supply behavior and Social Security system funding.

JEL classification: H55, I1

Key words: smoking, Social Security, health, taxes, widows, low earnings

The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.

Please address questions regarding content to Brian Armour, Centers for Disease Control, 1600 Clifton Road, N.E., Mail Stop E-88, Atlanta, GA 30329, 404-498-3014, 404-498-3060 (fax),, or M. Melinda Pitts, Research Economist and Associate Policy Adviser, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470, 404-498-7009, 404-498-8058 (fax),

For further information, contact the Public Affairs Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470, 404-498-8020.

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