Wednesday, July 08, 2015

Cigarette Tax Increases Hurt the Poor : Black Market Hurts Politicians

The ever increasing cigarette tax is used to fund several health issue by politicians, and  the same time are the same people that trot out the ever higher tax rates to eliminate cigarette use, but then the revenue that they depended on to fund their cause goes away. Worse, at the same time it hurts those that are to be the beneficiary of the heath initiative, especially those that can't not afford the price of cigarettes, the poor.

And that the black market is stealing much of the funds of the politicians is just another nail in the coffin of bad political policy, hopefully.

Cigarette Taxes Lead to Dangerous Behaviors
Source: Jonathan Nelson, "High Cigarette Tax Rates May be More Harmful than Smoking," Economics21, July 5, 2015.

July 7, 2015

New York's cigarette taxes are the highest in the nation, at $4.35 per pack. Some New Yorkers naturally will seek to avoid cigarette excise taxes. People are tempted to buy cigarettes in a low-tax state such as North Carolina and sell them in New York, says Jonathan Nelson.

The black market created by cigarette taxes is very real. A report from Scott Drenkard of the Tax Foundation found a positive relationship between cigarette smuggling into a state and the state's cigarette excise tax rate. High tax rates produce an incentive for smugglers to purchase cigarettes in a low-tax state, and then sell them for a profit in a high-tax state.

The cigarette tax in New York may lower consumption, but it encourages smuggling.  In fact, notes Nelson, New York State has the highest smuggling rate (58 percent of all cigarettes).
A previous study conducted using data from 1991 to 2005 found a strong, negative relationship between cigarette tax rates and youth smoking participation rates.
  • Using data from 2007 to 2013, however, a new study found "little evidence that cigarette taxes discourage youth smoking."
  • The authors attribute this change in sensitivity to both anti-smoking efforts prior to 2005 — including cigarette tax increases — and to "an increasing reliance on online sources."
Increasing cigarette taxes disproportionately affects the poor. Low-income individuals tend to smoke more than higher-income individuals. Some smokers may quit if the cigarette tax rate continues to rise, but those who are strongly addicted will spend more of their income on cigarettes. This negatively affects their families.

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