Cigarette Tax Case Analysis
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Why Tobacco Taxation Matters
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On January 15, the House passed H. This legislation was similar to that passed in the th Congress H. A similar tax increase was contained in the Senate bill, and in the final proposal, P. The legislation is now being considered in the Senate. A justification is to discourage teenage smoking, but this effect is probably small; a reservation is that the burden falls heavily on low-income individuals. Taxes on other tobacco products are also increased, although cigarette taxes account for most tobacco revenues. This report discusses proposals to raise the cigarette tax to help pay for reauthorization of the State Children's Health Insurance Program. This report describes current taxes, discusses potential revenue gains, and discusses some of the basic issues surrounding a tax increase.
It also briefly discusses the tax increase on cigars. The Senate version and the final legislation, P. There is a 4 cent tax on a package of small cigars. Large cigars carry a tax of Per ounce, the tax is 7 cents on pipe tobacco; 1 cent on chewing tobacco; 4 cents on snuff; and 7 cents on pipe and roll-your-own tobacco. There are also taxes on cigarette paper and cigarette tubes. The cent cigarette tax increase would lead to a tax about 2.
Roll your own tobacco's tax increases about eight fold and seven fold and the relatively small taxes on small cigars are increased to those on cigarettes. Although the tobacco settlement payments resulted from negotiations between the tobacco companies and the states to settle state lawsuits, the payments function as if they were a national tobacco excise tax that is allocated to the states, and any changes that alter consumption would affect these payments. Some of the states have securitized their payments exchanged the stream of payment for a fixed up-front amount.
According to estimates, about a quarter of payments are made to private investors, rather than to state and local governments. There are many alternative sources of revenue or offsetting spending for funding the child health program. Are tobacco taxes the most desirable source of revenue? Compared to other taxes, the incentive effects may be desirable. At the same time, the burden falls heavily on lower income people, which may be of concern. Thus, there is a trade-off between the objective of discouraging smoking, and particularly discouraging youth smoking, and the distributional effects of the tax. The remaining issue involves an economic efficiency question relating to arguments that have been made that additional taxes are appropriate to cover costs smokers impose on others.
A number of economic studies have questioned that proposition. The following sections discuss these issues. A large body of literature has suggested that increases in the price of tobacco reduce smoking. However, this response is not very large in economists' parlance, the response is relatively "inelastic". Most of the evidence has found the price elasticity to be between 0. For younger smokers, the participation response was more important. Overall, the increased cigarette excise tax will be beneficial in terms of both the health of the general public and the economy as a whole. In conclusion, the concept of price floor should be implement by the government. Price floor is a legally determined minimum price that sellers may receive.
Every sellers cannot sell cigarette below the price of the price floor when the price floor of cigarette is set because it is illegal. Once price floor of cigarette is implemented by the government, the price of cigarettes will increase and the quantity demanded for it will decrease as there will be some smokers that cannot afford to purchase cigarettes as much as they bought previously. Black market is still exist although government is taking note carefully in the pricing of cigarettes. In year and , the rate of cigarettes sold on the black market in Malaysia was estimated to be at the rate of Thus, government must take action in order to control the market.
Therefore, government should control. Get Access. Satisfactory Essays. Saving this Generation Words 2 Pages. Saving this Generation. Read More. Taxation on Cigarettes Words 3 Pages. Taxation on Cigarettes. Better Essays. Industry Research: Fuel Words 4 Pages. Industry Research: Fuel. Powerful Essays. Malawi and Tobacco. Analysis On Taxes On Cigarettes. Good Essays. Smoking: Good For The Economy? Tobacco Industry. Smoking Decreases Life Expectancy. In some cases, this may even create incentives for governments to at least tolerate—if not encourage—tobacco use, as it becomes a major cash cow for general spending budgets.
On one hand, it could be argued that increased tax revenues from smoking is a good thing as it boosts the amount of money to spend on improving public services. It's also reasonable to suggest that this extra capital can go to funding healthcare programs and, specifically, covering the expenses of treating sick smokers, who controversially cost the state hundreds of billions of dollars a year. Still, tobacco or cigarette tax isn't without controversy. This can especially be the case when some or all tobacco tax revenue is earmarked for specific spending, such as healthcare or schools, thereby creating a concentrated interest group that benefits from ongoing tobacco revenue.
Accessed July 31, Health Insurance. Your Money. Personal Finance. Your Practice. Popular Courses. Fiscal Policy Tax Laws. Key Takeaways A tobacco tax or cigarette tax is a tax imposed on tobacco products, with the state goal of reducing tobacco use and its related harms. Due to the price inelasticity of demand for addictive products such as tobacco, these taxes have a relatively small effect in reducing tobacco use. Because they generate substantial revenues, tobacco taxes can easily lead to perverse fiscal incentives and the encouragement of ongoing tobacco consumption. Article Sources.
