Cigarette Taxes, a Gold Rush for States

Cigarette Taxes, a Gold Rush for States Cigarette smoking has appeared throughout the history of many states around the globe, and it is an increasingly contested issue even today. It is not a surprise, therefore, to hear that when there is a need for funds in any state, hiking the cigarette taxes is the most likely alternative. Rates of cigar smoking have reasonably changed over time since their wide use in the mid-twentieth century. While these rates are leveling off or even declining in developed countries, they are continuously on the rise in developing nations. The dark side of cigarette smoking is that it has serious health effects, which have claimed a lot if lives and resulted to numerous birth defects.

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Cigarettes, in many localities, have become a significant source for tax revenue. History has it that, owing to its detrimental health effects, healthy groups seeking to discourage cigar smoking support hikes in cigar taxes since the government also seeks to maximize tax revenues.

Therefore, reasons for constant increase in cigarette taxation are to discourage cigarette smoking and raise revenue for the state. However, the question is: How effective and efficient has this been? Are the implications overly positive or negative? How has it been received by the consumers?

Revenue estimators for the state know that when tax on a product is elevated, there is less supply of that product. From 1979 to 1996, Oregon hiked cigar taxes from 9 cents per pack to 38 cents. In every case, tobacco use fell at an average of almost 9%- two times more the state’s estimate (Evans, 1996). It has been evident in the US that higher cigar prices discourage smoking. For every 10% hike in cigar price, about 7% decline in youth smoking and overall 4% decline is registered in cigarette consumption (Young, 2010).

On the state budget side, it is arguable that any economy that has considerably increased its taxes on cigarette has experienced significant elevation in revenues. Higher taxes of tobacco also help save some money by reducing healthcare costs attributed to cigarette smoking, including the medical expenses. To realize even greater benefits and cost savings, some of the revenues can be channeled towards programs that can bar children from smoking and help the cigarette addicts stop smoking. There has been overwhelming and consistent public support for an increase in tobacco taxes. Polls have shown that voters prefer elevation of tobacco taxes to other tax increases, when it comes to balancing the budget (Evans, 1996).

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However, there is the outcome that states need to reckon with, “unintended consequences”. While it is true that high taxes on cigarettes result to reduced smoking and increased state revenue, there have also been negative implications from move. Increased prices will compel consumers to purchase from states where prices are friendly or turn to products that are smuggled. The ancillary problems that have accompanied hikes in cigarettes include; interstate smuggling (which involves movement of goods across borders while avoiding duties on the product), theft, and channeling (which is a change in the way people acquire products they want) (McMahon, 2002). The problems above are likely to drag behind the rise in revenues intended and increase crimes.

Nevertheless, the most effective way of discouraging cigarette smoking and increasing revenues at the same instant is by increasing their taxes. The states contemplating the idea of hiking cigarette taxes should reckon with the side effects stated above, and find ways of tackling them even before they crop up and apparently curtail the intended benefits.

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Evans, M. (1996). Cigarette tax measure may have unintended consequences. Portland Business Journal. Retrieved from http://www.bizjournals.com/portland/stories/1996/11/04/editorial4.html?page=all McMahon, E. J. (2002). NYC Cigarette Tax hike endangers Pakati Health Funding. Fiscalwatch Memo. Retrieved from http://www.nyfiscalwatch.com/html/fwm_2002-05.html Young, A. (2010, March 26). Cigarette taxes are gold rush states. USA TODAY.com. Retrieved from http://usatoday30.usatoday.com/news/nation/2010-03-25-cigarette-tax_N.htm? csp=usat.me