On Wednesday the federal tax on cigarettes jumps from 39 cents to $1.01 a pack. In addition, the tax on chewing tobacco will go from 19.5 cents per pound to 50 cents This is to fund the recently passed expansion of SCHIP which will increase health care coverage for children.
Funding any federal program by revenue that will go down over time is not sound budgeting. As Economics 101 would teach you, people respond to incentives. If the price of cigarettes keeps going up, demand will go down. Thus, the tax revenue received from the increase in the cigarette tax will go down as fewer people continue smoking. Even the Federal Government is championing the fact that smokers will inevitably quit when cigarettes get too expensive.
However, once smokers begin to quit, where is the money going to come from to fund SCHIP? The number of smokers would have to rise significantly to cover all the costs of the SCHIP program in its entirety. Smokers better suck it up if only to help the kids!
Smokers, except for elitist Bill Flanigen, come primarily from the lower and middle class. As this chart from The Heritage Foundation shows, the burden of tobacco taxes are placed on the very people President Obama said he would not tax.
So if anyone out there is a smoker, you better stock up on cigarettes on Tuesday in order to save some dough before the tax increase. But the higher prices better not discourage you from continuing smoking, or else you are taking money away from children's health care, you heartless smoker!
1 comments:
JJ,
The problem in your and Heritage's argument is that the demand for cigarettes is fairly inelastic (fairly vertical demand curve), meaning that changes in price barely effect changes in quantity demanded.
If you raise the price enough, will people eventually be unable to afford cigarettes? Yes. But because of the addictive properties of cigarettes, and the nature of a demand curve reflecting that, that price is a long way off.
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