Losing Revenue By Raising Taxes

Hot Air is reporting today that the Midland, Mich.-based Mackinac Center has released a report stating that in 2011 New York had the highest cigarette smuggling rate in America. In 2006, when the cigarette tax was $1.50 a pack, New York was the fifth highest. In 2008, the tax went to $2.75 a pack, in 2010 it went to $4.35 a pack. That increase was enough to move New York from fifth place to first place in the number of cigarettes smuggled into the state. It is now estimated that 60.9 percent of all cigarettes smoked in New York are not taxed there!

What can we learn from this? Simple. People don’t like to pay taxes and will do almost anything to avoid them. Some state is making money on the sale of these cigarettes–it’s just not New York. New Hampshire seems to be where most of the smuggled cigarettes are coming from–New Hampshire does tax cigarettes, but only $1.68 a pack. I suspect New Hampshire collects more revenue from its lower tax than New York does from its higher tax. Maybe we could learn from that.

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Taxes Really Do Influence Behavior

Breitbart.com posted an article today about the impact of an upcoming tax increase on cigarettes in Illinois scheduled to take affect later this month. On June 24, the tax on a pack of cigarettes will increase by $1. Some convenience stores are running low on cigarettes because customers who usually come in to buy one carton are currently buying two or three in order to save the $20 or $40 dollars.

The article reports:

As NBC Chicago reports, a Cook County, Illinois, cigarette tax hike earlier this year is to blame for an alleged 15 to 20 percent drop in business at one Illinois tobacco retailer, adding that Indiana sellers could substantially gain from the latest increase:

“After March 1 when Cook County raised their taxes, I lost about–between 15 to 20 percent of my business,” Illinois tobacco shop owner Jawad Muqeet said. “The prices are so high nobody wants to buy cigarettes in downtown”

Indiana tobacco sellers could gain from the this increase. Hammond smoke shop owner Roni Patel says a carton of Marlboro cigarettes costs $56 on average in Indiana, compared to $50 in Will County, Illinois. He says the average price per carton in Will County will raise to $61 following the tax increase, expected to go into effect June 24.

Behavior that is heavily taxed decreases; behavior that is subsidized increases.

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Tackiness Prevented

Jeff Jacoby at the Boston Globe posted an article today about the decision last week by US District Judge Richard Leon to block a Food And Drug Administration (FDA) rule that would require cigarette manufacturers to put graphic images on cigarette packs showing the dangers of smoking.

A few disclaimers here–I don’t smoke–never have–I hate the smell of cigarette smoke, but I don’t think smokers should be forced to stand in the freezing snow outside a restaurant to enjoy a cigarette. (However, they do need a separate section of the establishment with a separate ventilation system,)

However, required graphic images on cigarette packs is a bit much even for a non-smoker like me.

The article points out:

The FDA’s gruesome new labels are not designed to provide consumers with useful information about the hazards of smoking. After 45 years of mandatory Surgeon General’s warnings, every non-comatose American knows perfectly well that cigarettes are a noxious health risk. That’s why the share of Americans who smoke at least occasionally has fallen to an all-time low of 19.3 percent, or less than 1 in 5 — a far cry from the more than 42 percent who were smokers in 1965. No one, not even Big Tobacco, disputes Washington’s right to require cigarette makers to disclose pertinent facts about their product’s dangers. Those disclosures, it’s clear, have been effective.

The government has no power to require the cigarette companies to put graphic images on their cigarette packs. To me, the requirement that there be an anti-smoking warning is a stretch.

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