by Fergus Hodgson
Director of Fiscal Policy Studies
Cigarette Taxes bring Revenue, not Health Outcomes
Excise taxes on an array of items exist to dissuade consumption, or at least that is what proponents would have us believe. Such proponents may even believe the myth, but a new paper from the National Bureau of Economic Research lays waste to such arguments.
The lengthy paper concludes that "adult smoking is largely unaffected by taxes," and any weak relationship is not usually statistically significant. Yes, a downward sloping demand curve still applies — people are unlikely to buy $1,000 packs of cigarettes — but relative consumer responsiveness (or price elasticity of demand) is minimal. The authors estimate that even a 100 percent increase to current taxes, which already average $2.40 per pack, would reduce smoking by only 5 percent.
[T]obacco taxes remained relatively constant in real terms between 1983 and 1990, but tobacco use declined continuously during this period. From 1990 to 1998, tobacco taxes increased by approximately 20%, but tobacco use continued to decline at about the same rate as between 1983 and 1990. Finally, from 1998 to 2008 tobacco taxes nearly doubled and there were over 100 increases in state tobacco taxes, yet tobacco use remained on its long run trend toward less use with no noticeable break as taxes began to increase significantly.
The lack of worthy behavioral change — not that such behavior manipulation is legitimate anyway — follows a similar pattern to taxes on sweets and sodas. In the case of cigarettes, people have the ability to buy black market cigarettes across state or national borders, switch to lower priced brands, or simply be addicted and reluctant to change their consumption.
Given the resistance to change among consumers, why have legislators continued to raise cigarette taxes, particularly during the past decade? As Sven Larson of the Wyoming Liberty Group has noted, officials have grown dependent on the revenues, and they want even more. Sadly, this burden falls disproportionately on the poor and those struggling with addictions.
Image of the week
Sometimes progress towards fiscal sanity and economic liberty may seem like an uphill battle, as though advocates were swimming against the current. However, this image captures what I believe to be a grain of truth about the United States context. The majority of individuals do support limited government, assuming personal responsibility, and are weary of expanded government.
The Tea Party movement, in particular, testifies that people are becoming more aware of government corruption and inefficiency and are no longer behaving as sheep normally would. This trend only looks set to continue, as technology and independent media enable much greater transparency, and should give people optimism for the future.
This image also brought back memories. As some of you may know, I grew up on a sheep and cattle farm in New Zealand, and here is some sheep humor from that era.
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