WSJ: Why raising the tobacco tax will hurt the states

[unixronin]

Higher taxes discourage cigarette sales.  Nobel economist Gary Becker pegs the long-run price elasticity of demand for cigarettes at 0.8 -- i.e., a 10% increase in price causes an 8% decline in unit sales.  The Obama tax hike translates into a 13.3% increase in the average pack price.  That implies a 10.6% decline in unit sales -- which the National Tax Foundation has calculated adds up to a $1 billion overall revenue loss for hard-pressed states.

[...]

None of this is good for the economy.  Consumers and state governments are already having a tough time making ends meet.  Burdening them with a new $38 billion tax and a $1 billion cut in revenues isn’t going to help create jobs.  Estimates by the National Association of Tobacco Outlets of the job losses in cigarette manufacturing and distribution alone exceed 100,000.

Smugglers and counterfeiters won’t lose their jobs, though.  Both the General Accounting Office (GAO) and the Alcohol, Tobacco, and Firearms (ATF) agency have concluded that the multibillion-dollar cigarette-smuggling business grows with every excise tax increase.  The ATF and GAO also believe that cigarette-smuggling is a form of cash laundering and profits for both organized crime and terrorist organizations.

Comments

[milktree.livejournal.com]

I see the point the author is making, and I don't disagree with his conclusions (they seem to make sense) but I'm having trouble getting worked up about this. It's probably because I'm one of the people whose nose and throat and eyes stop working when exposed to cigarette smoke, it's incredibly unpleasant to me, even the smoke that hangs out in the clothes of smokers.

And... well... Nobody denies the health benefits of quitting smoking, and a healthier population is good for everyone.

[ithildae.livejournal.com]

The states made a HUGE mistake when they entered a settlement with the tobacco industry. They are now committed to the tobacco industry surviving, as a profitable entity, for the foreseeable future. That means that they are unwilling to raise taxes on tobacco products to cover the related health care costs from those products, because it will damage revenue. In effect, the states are subsidizing tobacco in return for a cut of the revenue.

Short term thinking prevails in all government levels right now. (Where do you think business got the idea?) The next budget/election cycle is all that matters. Tobacco is an industry that is, "Too Profitable to Fail".

[jmkelly.livejournal.com]

So conversely, lowering tobacco taxes would help the states; and by extension, subsidizing tobacco would help the states (and the economy) even more. But where would we get the money? I know! We'll put a tax on lung cancer and emphysema treatments!

I think I would fall down in a dead faint if the WSJ ever wrote anything in favor of any sort of tax. Except possibly a tax on the poor -- they wouldn't mind, they're used to doing without money.

[rob-thompson.livejournal.com]

Everyone seems to KNOW that cigarettes are evil. In 1919, everyone KNEW that alcohol was evil - and voila, the Volstead Act. That worked really, really well though, didn't it? Gave us all sorts of anti-folk heroes! Canada has been going after tobacco like this for over two decades. Guess what...it doesn't work. I sit here, smoking my black market smokes because I can. Be damned if I'm going to pay retail, or even wholesale. Cigarettes...hell tobacco, is just another poison to put into our systems. If it causes people to tear up, too damn bad. That same person drives a car - causes people with asthma to choke up - but that isn't a consideration. So - for the ant-smoking people - get off your high horses and recognize that enacting another form of Prohibition is just as doomed to failure as the first one and as a second minor point - quit being a hypocrite. If you're anti-tobacco, you damn well better be anti-booze, anti-automibile and willing to pass prohibitive taxes on same - otherwise, you're exactly as named.

[unixronin.livejournal.com]

Tobacco is one of those devilish problems with no easy solution. Damned if you do, damned if you don't.