Cigarette and Tobacco taxation has been a hot topic for years. Typically, the taxing of this product is accepted as there are health concerns associated with the consumption of tobacco products. The concept of raising cigarette taxes aligns with goals of increasing revenue for local, state and federal governments, and also works to increase the overall public health of the country. Although the taxation is widely accepted, there are concerns associated with who the taxation effects primarily, how funds are being utilized and issues with meeting budget goals with the earned revenue. This paper addresses each of these topics in an effort to identify the effectiveness of cigarette ...view middle of the document...
The report highlighted all the health consequences of tobacco use. It further held cigarette smoking responsible for a 70% increase in the mortality rate of smokers versus non-smokers. Furthermore, it indicated that cigarette smokers are at a 9 to 10 fold chance of developing lung cancer (National Library of Medicine).
The Surgeon General’s report on smoking and health greatly impacted the public attitudes and policies towards smoking. It started with labeling cigarettes with the Surgeon General’s warning to prohibiting advertisements on television and radio (National Library of Medicine). Furthermore, with the public health concern, the government began enacting heavier taxes on tobacco products with the hopes that higher taxes would reduce the consumption of cigarettes and other tobacco products.
According to Gruber and Koszegi (2008), the consumption of tobacco products is said to be the leading cause of preventable death in countries that are considered developed or developing. Furthermore, there are more than 390,000 early deaths that are caused by cigarettes in the United States (Wasserman, 1992). If the consumption of tobacco products continues on its current path, it is anticipated that in a few decades, 10 million people will lose their lives to tobacco related deaths (Gruber & Koszegi,2008).
Prior to the 1964 Surgeon General’s Report, the taxes on tobacco products were thought to be valid only for raising revenue for the government, after the report, it was thought that there needed to be some regulation on the consumption of tobacco. Excise taxes became an integral part of the regulation on cigarette and tobacco consumption. The basis of the excise tax was founded on simple economic theory and the laws of supply and demand. The assumption is that if the prices of the cigarettes are raised due to taxation, fewer taxes will be consumed by the public.
Economic Theory and Cigarette Tax
Meirer and Licari (1997) discuss that the theory associated with the cigarette tax is that of supply and demand. This is a basic principle in economics and aids individuals in making decisions for organizations as well as in areanas of public policy. Bayes (2011) indicates that the Law of Demand follows that the price and the quantity demanded are inversely related, that is if the price increases, the demand decreases and vice versa. With regard to the supply function, it is noted that taxes, specifically excise taxes are a supply shifter. An excise tax indicates that there will be a tax on each unit sold by the supplier. The government then obtains the revenue from that tax from the supplier. This indicates that the supplier must receive that additional tax rate from the consumer in order to pass it along to the government if they are going to continue supplying the product along the same supply curve.
As with all consumer goods, it is of utmost importance to grasp the price elasticity of a product in order to...