David Hogberg has an excellent column here on the proposal to fund increasing federal expenditures for children’s health programs with a new tax on cigars.
Hogberg points out that we’ve tried this before. In 1990, as a part of the infamous tax deal that sealed the fate of Bush I, Congress imposed a stiff luxury tax on jewelry and yachts. The result was a collapse of those industries. The increased cost of unemployment compensation was greater than the revenues raised by the tax.
Politicians never seem to learn that people react to higher prices — whether it’s for yachts, cigars, or employees.
