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Wednesday, February 25, 2009

Some Thoughts On Imposing Tobacco Taxes

N.B. This post is by Stephen D. Sugarman, new grandfather and the Traynor Prawf at UC Berkeley Law.

To help fund health insurance for children in working-class families, Congress just raised the federal cigarette tax from $.39 a pack to slightly over $1/pack. Both the tax and spending sides of this measure will improve the health of Americans. Future tobacco taxes, however, should be designed to even out the variation that exists from state to state. Ten states currently impose less than 50 cents-a-pack taxes, while 10 other states tax cigarettes at $2/pack or more.

A good way for the federal government to reduce this difference is to follow the strategy used to fund unemployment insurance. Congress could enact a new $2/pack federal cigarette tax that would be waived if a state’s own tax were at least $2. Surely low-taxing states like Kentucky, South Carolina, Missouri, and Mississippi would prefer to increase sharply their own taxes than have their smokers taxed anyway and the money go to Washington.

Lots of empirical studies show that these higher cigarette taxes would help reduce smoking rates in what are currently low-tax states -- most of which, like those listed above, now have among the highest smoking rates in the country.

The new revenue would help those states pay for smoking cessation programs and health care for indigent adult smokers (which might be mandated by the federal government). Furthermore, reducing the state-to-state tax differential would help shrink what today is a moderate but growing problem of interstate tobacco smuggling.

Beyond that, an assured nationwide minimum tobacco tax of $3 a pack would bring the U.S. closer toward compliance with the Framework Convention on Tobacco Control, the international tobacco treaty already adopted by most nations and which, it is hoped, the Obama Administration will soon convince the U.S. Senate to ratify.

Posted by Administrators on February 25, 2009 at 01:03 AM in Current Affairs | Permalink


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When will they start putting a punitive tax on fast food and junk food. I'm sure that heart disease, diabetes and obesity are costing our health care system at least as much as tobacco related illness. There will eventually be a reduction in healthcare costs due to decreases in smoking, but it will belong after the significant loss of revenue caused by these draconian taxes.

Posted by: Paul | Mar 13, 2009 5:05:29 PM

I just want to throw my two cents in on this subject. I am firmly against the tobacco tax increase as I beleive it is an attack on future rights. What we dont realize is raising taxes makes it more acceptable in future taxing of other things we use in our daily life. Whats next, toilet paper? That doesnt seem so far fetched as fifty years ago there were things being brought to issue that we thought never would happen. Well guess what? They are happening now and the reality of it is we do not have any rights. Thats because things are getting out of control, like invading our rights and us not defending them. They make tobacco seem so nasty but there are things so much nastier than tobacco that we are turning a blind eye to and thats a fact.

Posted by: Allen | Mar 3, 2009 1:24:08 PM

Daniel raises two understandable although inconsistent thoughts, so I had better carefully walk between them. First, the recent 62 cents a pack tax increase imposed by Congress on cigarettes will help reduce smoking rates, especially by teens, but federal tax revenue will still increase substantially. Second, the same would be true for many "red" states that now have very low tobacco taxes and high smoking rates. If they pushed their taxes to $2 a pack as I envision Congress enticing them to do, they too would both discourage smoking but raise a lot of money. Third, if that new money were substantially used to fund smoking cessation opportunities and the tobacco-related health care costs of low income smokers, then in a sense the tax could be seen in substantial respects as having smokers pay their way, or as having some of the costs of smoking internalized into the price of smoking. Fourth, to be sure were the U.S. eventually to get adult smoking rates down well below 10% (we are now at about 20%), then at some point tobacco taxes would cease to be a substantial income source -- but the public health gains from sharply lowered smoking rates would be enormous.

Posted by: Steve Sugarman | Feb 25, 2009 4:34:14 PM

I vaguely recall reading somewhere that Congress raised cigarette taxes in the mid-1990s, only to later repeal part of the tax increase because the tax was too good at deterring consumption, and overall tax revenue fell as a result. Even if this tale is aprocryphal, there is something a bit unsettling about the government's reliance upon sin taxes for significant revenue. A similar issue is presented by those states that depend upon tobacco settlement revenue to fund general operations. Admittedly, these concerns may ultimately overstate the magnitude of the issue as a practical matter--for example, the public savings due to improved healthcare may ultimately prove a more significant factor. But it's important to recognize the potential problem with giving the government a financial incentive to encourage a segment of the population to engage in socially detrimental activities.

Posted by: Daniel | Feb 25, 2009 2:46:42 AM

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