Latest Posts

Home

Facebook

Twitter

Search
About

Cigarette taxes are regressive and don’t reduce smoking very much

A question I’ve asked before; “Why do we tax people?”

Probably the most common answer would be ‘To pay for stuff’. But that is not the only answer. Recognizing that taxes affect incentives, politicians also use taxes to discourage undesirable behavior. If you tax something, people do less of it.

This is the logic behind cigarette taxes. But, with nearly 3 in 4 smokers are from lower-income communities, these taxes are ‘regressive’, meaning that they take a greater share of income from the poor than from the rich.

For some, this is a good thing. In a recent interview, Michael Bloomberg – who as mayor of New York was notorious for his ceaseless attempts to micromanage the lives of the city’s inhabitants – said “Some people say taxes are regressive, but in this case – yes, they are. That’s the good thing about them. Because the problem is in people that don’t have a lot of money, so higher taxes should have a bigger impact on their behaviour and how they deal with themselves.”

But the empirical literature does not support this argument, at least at rates below 100%. Instead, we have high tax rates on these products mostly purchased by the less well off with very little compensation in terms of reduced smoking. Demand for cigarettes is pretty price inelastic in the jargon, meaning that the percentage change in quantity demanded is smaller than the percentage change in price following a tax increase. This is because cigarettes are addictive, something I can attest to personally as an ex-smoker. But this inelasticity makes them a handy source of revenues. Maybe we are back to ‘To pay for stuff’ after all?

Leaving aside the question of whether government ought to be involving itself in these sorts of personal decisions (Milton Friedman argued that it shouldn’t), cigarette taxes don’t even appear to be working on their own terms.

John Phelan is an economist at the Center of the American Experiment. 

Comments

Subscribe

Categories

Upcoming Events

  • The Diversity Delusion

    Location: Hilton Minneapolis 1001 South Marquette Avenue Minneapolis, MN 55403

    Please join Center of the American Experiment on Wednesday, April 24th at the Hilton Hotel for a lunch forum with Heather Mac Donald as she discusses her new book, The Diversity Delusion: How Race and Gender Pandering Corrupt the University and Undermine Our Culture.  Heather Mac Donald is the Thomas W. Smith Fellow at the Manhattan Institute, a contributing editor of City Journal, and a New York Times bestselling author. She is a recipient of the 2005 Bradley Prize. Mac Donald’s work at City Journal has covered a range of topics, including higher education, immigration, policing, homelessness and homeless advocacy, criminal-justice reform, and race…

    Register Now
  • 2019 Annual Dinner Featuring Nigel Farage

    Location: Hilton Minneapolis 1001 South Marquette Avenue Minneapolis, MN 55403

    Purchase Tickets Here

    Register Now