Cigarette Sin-Tax Hike Could Boost Black Markets

"Do-gooder" types are just making the situation worse.

SACRAMENTO — Anti-smoking activists have submitted to the attorney general a proposed ballot measure to boost taxes on a pack of cigarettes by $2, and use the revenues to fund research into the treatment of tobacco-related diseases. It’s the latest effort to crush smoking by significantly hiking the costs of tobacco.

“Increasing the cost of cigarettes has been shown to be the most direct and effective way to reduce smoking,” according to the proposed initiative’s findings. This proposal will "help advance medical research and prevent more kids from taking up a costly and dangerous habit," said Marsha Ramos, chairwoman of the American Lung Association in California, in a statement.

But many economists note that, at some point, tax hikes offer diminishing benefits, thus reminding me of an entertaining old thought experiment about the effects of taxation on people’s buying habits.

What if a dictator hated Poodles and decided to impose a $1 million per-pooch tax on their sale? Most likely, the government would not receive any revenue from this tax. Yet people would still buy and sell these curly haired dogs. Many people would pay, say, a $500 tax on them, but as the tax went up, eventually tax proceeds would fall.

We’d see an underground economy emerge. Some people would shift their affection to Labrador Retrievers, but many others would get a Poodle smuggled from Mexico or elsewhere. In fact, news reports suggest the black-market issue will figure prominently in the anti-tobacco-tax campaign if the measure qualifies for the November 2014 ballot.

New York City, for instance, has total taxes (state, federal and city taxes) of $6.86 for every pack of cigarettes, making the government the biggest beneficiary of tobacco sales there. “They’ve cranked up taxes and now recent evidence suggests that 60 percent of cigarettes sold in New York don’t carry a tax stamp at all,” explains William Shughart II, research director at the libertarian Independent Institute.

In a study released in September, a research group affiliated with the California Chamber of Commerce found that 20 percent of all the cigarettes consumed in our state are smuggled here from other places as of 2011. Currently, the average cigarette-pack costs $5.44 with $2.27 going to combined taxes, according to the San Francisco Chronicle.

“The $2 tax increase would double California’s current smuggling rate to 39 percent of total cigarettes consumed,” according to the California Foundation for Commerce and Education study. The tax “may create the unintended consequence of increasing organized crime in California,” given that’s who would be smuggling the cigarettes.

Higher taxes mean reduced smoking, Shughart notes, but the “elasticity” of cigarette smoking is low, meaning that many people will continue to smoke no matter what. There’s no easy alternative in the way that Poodle owners can choose Labradors.

By the way, smoking has been falling for 50 years, so it’s not easy to separate the role of tax hikes from other cultural factors that are driving down smoking rates, according to Shughart. That raises doubt about the effectiveness of a tax hike.

This initiative idea also highlights some hypocrisy, given that the government is as addicted to this tax money as smokers are to nicotine. “Government doesn’t want smoking to decline much because if it does, they lose revenue,” Shughart added. Even the initiative verbiage notes that the extra two bucks is needed because fewer people are smoking, which endangers the funding of existing tobacco-funded programs.

In 2012, a similar tobacco tax measure failed. One factor in Proposition 29’s defeat: Voters balked at creating new programs during a budget crisis. But with the state’s books roughly balanced, voters might have a different view.

Some supporters say there is no down side to raising tobacco taxes given that, whatever the resulting black markets, some people will smoke less. They say it’s only fair given that smokers impose disproportionate health costs on the public. Tax foes argue that the tax is regressive, meaning that it falls hardest on less-affluent people who often are smokers.

I’m less worried about any additional tax on my occasional, and already expensive, cigars, and more concerned about a state government that wants to tax us for our own good — even as it becomes addicted to the proceeds from such “bad” behavior.

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  • Alice Bowie||

    I want to see the SIN-tax outlawed.

    That is a ridiculous tax.

    We should only have income tax with a flat rate and just get rid of all of these other taxes.

  • Death Rock and Skull||

    All asset and excise taxes are bullshit.

  • alexisaudrey||

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  • Death Rock and Skull||

    Switch to cannabis. It is not as much of a pain in the ass to grow your own. It practically grows itself and all you need is a little Sunshine Mix.

  • C. S. P. Schofield||

    Cannabis has strongly different effects from tobacco. It is, even in the midst of the anti-tobacco hysteria, generally accepted that nicotine boosts short term memory and concentration, whereas cannabis pretty much screws both.

    I'm not saying that one is good and the other is bad, but people who smoke tobacco are looking for something they won't get from cannabis.

  • gimmeasammich||

    To not be hassled by "the Man?"

  • RachelMcCarter23100||

    my classmate's sister makes $74 every hour on the laptop. She has been fired for 5 months but last month her payment was $20543 just working on the laptop for a few hours. Here's the site to read more,..WWW.JUMP85.COM

  • Almanian!||

    Know what got me to quit smoking, finally? AFter 30 years? It wasn't the exorbitant taxes.

    It was that my company's healthcare plan was changed so I'd pay more if I didn't quit. I'm so fucking cheap, I quit. Took three tries...but I did it. I like feeling better, too, so I won't be starting again when I retire...

    Anyway....increase in black markets due to increases in taxes? WHAT? Where has THAT ever happened in the history of man?!

  • Almanian!||

    PS The increase in insurance cost ON TOP OF the ridiculous price of six bucks a pack was what finally tipped me over. So maybe the taxes played a part...although mostly I just looked at it as CODB. Increase in my insurance costs, though? FUCK THAT!

  • sarcasmic||

    They say it’s only fair given that smokers impose disproportionate health costs on the public.

    Except that smokers tend to die earlier than non-smokers. Since the vast majority of health costs are in the end of a person's life, the shorter the life, the less total health care costs. Same thing with obese people.

  • Death Rock and Skull||

    Who cares. "The public" is entitled to no particular health costs anyway.

  • Floridian||

    I think smokers that die earlier just use their expensive end of life care sooner. Now if you want to talk about a group that dies quickly like tight rope walkers or lion taunters then you have a point. But smokers do need more vascular surgeries, lung surgeries and cancer treatments.

  • Death Rock and Skull||

    Again, who cares.

  • Floridian||

    I agree with you if a free society. But when you are paying someone else's bill you have some interest on how much money they spend.

  • Agile Cyborg||

    You pay a few thousand bucks (or thereabouts) a year into a multi-trillion dollar pot of taxes. Your tax payment is nanoscopic when compared to the whole. You are paying for nothing other than, perhaps, an Afghanistan hammer or a dusty toilet seat for Gitmo.

  • NotAnotherSkippy||

    OK, so I'm paying some sociology major's education bill through subsidized loans. There's a significant possibility they will never repay them. Shouldn't I be entitled to have a say in what their allowed major can be? Or the amount of loans they can receive?

  • SQRLSY One||

    Amen, Bro! And if I the taxpayer am paying for all the welfare mommas, I should also get a voice in how much they sleep around and make more babies… Well heck, if I am required to buy insurance which must cover fallible birth control and maternity services, that goes for ALL women, as well! And suppose I as a female chose to have my tubes tied and NOT be able to make babies, in what way is it fair to make me buy maternity coverage and cover the baby-making choices of others?

  • sarcasmic||

    But smokers do need more vascular surgeries, lung surgeries and cancer treatments.

    Alcohol, Obesity and Smoking Do Not Cost Health Care Systems Money

  • Floridian||

    This may be one of those counter intuitive bits of science. I would like to see the studies done in the US vs UK to see if the results are the same.

  • Floridian||

    I also question the "healthy" group cost. If they are healthy what healthcare dollars are they spending? Are they going to the doctor every year because they pay the taxes why not use the service for colds and sprained ankles? If they had to pay directly for care would the healthy group self ration?

  • sarcasmic||

    In that context I believe healthy meant non-obese. Non-obese people still can get Alzheimer's or require hip replacements or a host of other things that just happen as the body gets old.

    I think that's the point.

    How many total health care dollars will be expended on a "healthy" 95yr old who needs joint replacements and a decade of care for dementia compared to an "unhealthy" person who requires surgery and cancer treatment before they die in their late 60s or early 70s?

  • Floridian||

    Could be. I'm open to the idea. But the fact of the matter is if we stop socializing cost people can make their own choices and I can finally pitch my Russian roulette game show to GSN.

  • sarcasmic||

  • Floridian||

    Christopher Walkin makes me laugh even in serious roles.

  • sarcasmic||

  • IDPNDNT||

    They pull out this little line whenever they want to ban something, and then wonder why people are scared shitless about moving things over to government control.

  • C. S. P. Schofield||

    Hell, they piously teach young children how every previous political elite used the power of the State to oppress the masses .... and then wonder etc.

    Heads of solid biscuit.

  • Doctor Whom||

    At the same time, we can jack up taxes to the ionosphere, and it won't make a difference 'cause economic actors don't respond to taxes. Which is it, slavers?

    Oh, I remember now. It intends on the intent behind each tax, since intent is magic.

  • jimpeel||

    "When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that justifies it."
    -- Frederic Bastiat

    Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.
    -- C. S. Lewis

  • sarcasmic||

    "Political tags — such as royalist, communist, democrat, populist, fascist, liberal, conservative, and so forth — are never basic criteria. The human race divides politically into those who want people to be controlled and those who have no such desire. The former are idealists acting from highest motives for the greatest good of the greatest number. The latter are surly curmudgeons, suspicious and lacking in altruism. But they are more comfortable neighbors than the other sort."
    -Heinlein's Lazarus Long

  • On The Road To Mandalay||

    I used to smoke cigarettes for years and years, and got up to two packs a day. And then about 20 years ago I quite cold turkey because my doctor told me that if I did not I would be dead or on oxygen by NOW. I have never regretted it for a second. However, I sympathize with smokers today because I can "feel their addiction" to nicotine. Eventually, when this ticket is pushed as far as it will go, cigarettes will become illegal and just about everything else will become legal. Everything in this childish society we live in is always pushed to extremes. Back and forth it goes. Eventually, gays and lesbians will be criminalized again. Sorry, but it is very rare in this society for things to remain "balanced out" for very long. I suppose that is true in most society. This will apply to fads such as dress and so on. Eventually it will probably become fashionable to bath only once a week to save water. What the hell, why not!!! The hippies during the 1960s hardly ever bather.

  • Erik Jay||

    "...But with the state’s books roughly balanced, voters might have a different view.

    Some supporters say there is no down side to raising tobacco taxes given that, whatever the resulting black markets, some people will smoke less. They say it’s only fair given that smokers impose disproportionate health costs on the public."

    Who says California has its "books roughly balanced"? With what lies, omissions, and accounting gimmicks THIS TIME? And the author does ascribe the silly "smokers impose disproportionate health costs on the public" statement to tax proponents, but might have added at least parenthetically that it is bulloffal. I prefer "offal" for the great homophonic pun it is, and added to "bull" it produces a nice sound, don't you think? Bulloffal! Not felafel! Bulloffal!

  • OneOut||

    But it wasn't to save water.

    It was because they occasionally ran out of drugs.

  • WashMagic||

    Today, cigarettes. Tomorrow, sugar. Don't all substances have a health spending rating connected to them? I foresee that the government will someday add taxes to salt, since some research says that too much salt intake leads to hypertension. And suddenly, due to Obamacare, all substances and activities will be taxed, except for just doing nothing.

  • D. M. Michell||

    Two things. First, I smoked for 20 years, from 18 to 38. I quite over 20 years ago. I quit because I wanted to. I tried quitting for 10 years before I finally got free. If you don't want to quit, you can't. Period. Second, didn't Canada do a similar thing--raise taxes on cigarettes substantially--a few years ago? Within one year they had a one billion dollar a year smuggling problem, from housewives to mom and pop stores to organized crime gangs. Canada then removed the excessive tax.

  • alexisaudrey||

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  • sunzoomspark||

    I quit smoking when cigarettes first doubled in price in the late 90's.

  • Car Scanner||

    Very unique point of view.

  • MightyHeaton||

    Cigarette taxes decrease overall smoking rates, but that this is disproportionately effective with infrequent users.

    People who are not chain smokers and smoke only occasionally are most likely to adjust their habits through smoking taxes. Though of course borderline users are the ones who need help least. Meanwhile, chainsmokers are the least likely to modify their habits. Given chainsmokers are disproportionately poor, cigarette taxes simply punish poor smokers for being poor and smoking.

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