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1/30/2007
The Cigarette Tax - "Poor Policy Instrument?"
The pros and cons of increasing the cigarette tax are detailed in a recent Wisconsin Taxpayers Alliance (WISTAX) newsletter (request a free copy). WISTAX also includes brief abstracts of recent research.
Says WISTAX, in their January 22, 2007 issue of Focus:
There is little disagreement among economists that, all things being equal, higher taxes reduce cigarette demand. However, newer research, particularly econometric, is worth noting:
- In a National Bureau of Economic Research (NBER) paper, an MIT economist writes: ¡§I find that the most important policy determinant of youth smoking, particularly among older teens, is price¡K[but conversely,] price does not appear to be an important determinant of smoking in young teens.¡¨ He continues: ¡§With youths only smoking 2% of cigarette packs, taxes are a very blunt instrument to address youth smoking issues¡¨ (Gruber, NBER,2000).
- Given GAO estimates that Internet sales of cigarettes would reach $5 billion by 2005, economists at the Universities of Chicago and Michigan added online smuggling to statistical models and found that this has lessened the revenue generating potential of recent cigarette tax increases by 33% (Goolsbee & Slemrod, NBER, 2004).
- Although the Internet is the latest tax-avoidance scheme, the practice is not new. Results of a national survey of 3,400 smokers found that 59% avoid high prices in some way, including 34% who regularly purchase from a low or untaxed venue (Hyland et al., Journal of Tobacco Control, 2005).
- New doctoral work in economics from Michigan finds: the share of consumers buying across state borders ranges from 0% in low-tax Kentucky to 63% in D.C. (Wisconsin is at 8.6%) and that cross-border sales cause a modest increase in consumption.
- The author concludes that state-level cigarette taxation may be a poor policy instrument with which to decrease smoking and increase tax revenues. But he adds that such taxes could be a useful tool if smuggling were eradicated (Lovenheim, 2006).
This page commented on the Cigarette Tax when it was first proposed by Governer Doyle last week (January 24). So did several lawmakers (e.g., Senators Roessler and Ellis). How about you? Is a higher cigarette tax that pays for more health insurance and leads to fewer smokers, good policy?
FoxPolitics will keep your ear close to the statehouse on this burning ember.
COMMENTS
Carol Roessler never met a "tax" "law" "statute" she didn't like. When your under height/under weight 14 yr old is subjected to a "tweener" car seat/booster seat-ask Carol "what was she thinking?" when she supported all the this? The fines/fees/tickets for not being in a booster seat? the "fed" dollars for the exchange of putting us all BACK in the SANDBOX? And I am VERY uncomfortable with Carol Roessler heading up the Legislative Audit Bureau!!! I have asked for an audit regarding the MSA and cig tax of today and the pharma subsidies to all the nonprofit ANTIeverything.orgs...I get no satisfaction from that bureau. YES, additional burdensome taxation WITHOUT represention is VERY Poor Policy. thank you Capri Lione Madison, WI
Capri (Tue Jan 30 08:33:10 2007)
Poor policy? I'd say so. I see a huge black market arising so the gov gets no tax money at all.
Seeing as how the governor said there would be no new taxes, it shows what kind of a governor he is. He can hardly wait until the polls close before he starts his plan to raise taxes. Why should this plan lower kids smoking? The minimum wage has just been raised so those at least 16 years of age will have plenty of money with which to buy cigarettes. It's nothing but a feel-good tax-grabbing effort. Doyle gets to look like a hero even while he has his hands in our pockets and purses.
C.R. Stevenson (Tue Jan 30 11:35:20 2007)
Then how do you explain lower smoking rates in states with high tobacco taxes?
John (Wed Jan 31 08:47:45 2007)
It could be caused by older smokers kicking the habit as I did myself 14 years ago, but I do see way too many young people smoking. I'd like to see a link to your source.
This is only one facet of the possible problems with the new tax and doesn't address the other problems.
Don't forget, we were promised "no new taxes increases" by Governor Doyle and he's scarcely begun his second term.
C.R. Stevenson (Wed Jan 31 13:21:13 2007)
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