ECON 200
I'm not sure how many people read The Lantern while waiting for class to start, but in today's edition there was an interesting article on the federal cigarette tax. President Obama recently signed a bill that is going to more than double the federal tax rate on all tobacco products. The money collected from these taxes is going to be used to fund health insurance for children who are currently uninsured. (As a highly competitive distance runner, smokers are rather bothersome and this post may seem slightly biased with a few normative statements against smoking, just to let you know.)
There are two sides to the debate over this tax increase. Since the demand for cigarettes is highly inelastic the tax burden is going to fall mostly on the consumer. Many smokers are arguing that with the economy already under significant pressure this tax increase is coming at the wrong time. In addition, the money collected from this tax is going to a cause completely unrelated to smoking.
"You're making the bottom portion of society, who can least afford to pay taxes, pay more taxes." - John Nothdurft
However, many supporters of the tax increase are using an argument founded upon the long term opportunity cost of such a tax. It is projected that over 1 million adults and over 4.6 million students will stop smoking as a result of the tax increase. The students who smoke here at OSU will be immediately affected when the tax increases from $0.39 to $1.01 per pack on April 1. The drop in the number of smokers is predicted to reduce the overall cost of national health care by $44.5 billion. In addition, the tax is expected to collect $32.8 billion over the next four years and provide over 11 million children with health insurance. The opportunity cost of implementing the tax is evident and (normative statement) I personally think the tax is worth the number of lives it will change.
"It's both the law of supply and demand and the effect of children following the example of parents giving up the habit." - Alan Bavley
I would be interested to hear what other people think about the tax increase - both smokers and non-smokers.
Quotes from: "Higher federal cigarette tax expected to save lives" by Alan Bavley
My personal reason for quitting smoking has really been an economic one. Yes, I know the health benefits and all the blah blah blah, but what finally did it was my finances. I never wanted too, but when I finally sat down and did the math... $1200 to $1800 a year up in smoke. Exactly the kind of motivation needed to quit. Call it greed, opportunity cost, whatever. I think the wife and I can now afford to goto the Outer Banks this summer for vacation.
ReplyDeleteDoug P.
Econ 200
I am not a smoker and never will become one however, I find the cigarette tax troublesome. I am glad that the price increase has made individuals like Doug here quit however, I am extremely weary about the government's real concern. 10 years ago when Phillip Morris USA signed the Mass Settlement Agreement with all 50 states they agreed to fund a certain dollar amount to each state every year for a certain time period. This money was supposed and I emphasis supposed to be used for smoking prevention, health care, and any other smoking related issues. However, what occurred was that only 5% of the billions of dollars paid out by Phillip Morris was used for health care related issues. The other 95% was used to help balance the states' budget deficits. This tax not only places the burden on those who are smoking, but also all employees of the tobacco industry as well as convenience store owners who draw large portions of their revenue from cigarette sales. Finally, the data on the estimated numbers of people who will quit smoking because of the tax is great. However, what is currently happening is cigars and other tobacco products such as chewing tobacco sales are increasing. Therefore, the tax is not getting people to quit using tobacco, rather just switching to different products. Essentially the government is using these health concerns from smoking as their platform to increase government spending or to balance their own budgets.
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