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.

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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

[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.