Cigarettes, an Easy and Acceptable Target for Legislators

Published on July 3, 2009 4:28 AM

Cigarette tax was raised easier in other states than in California. For to eliminate a $24 billion budget deficiency, the state’s politicians are discussing dismantling California's main welfare program, ignoring the health insurance program for poor children and decimating education without any evident dispute on raising the income or sales tax.

Tobacco tax is one of the few state taxes that politicians have talked about. Today in California 87 cents cost a pack of cigarettes. But this year, the Legislature will consider raising it to $2.97 a pack, which would bring the cost of a pack of cigarettes to more than $7.00. Organizers of the bill consider that the tax raise would arouse about $2 billion.

Many people, smokers and non-smokers consider that tobacco tax is a good tax. In general business taxes have negative results because they drive companies and jobs out of the region. For example high income taxes make the state a less pleasant place to live. And in general sales taxes can discourage commerce too.

But tobacco taxes are not like other taxes, it is different. Theoretically tobacco taxes can raise incomes and at the same time serve the public good by reducing smoking. That's not inessential in a state where about 13.3% of residents smoke, where there are more than 30,000 smoking-related deaths each year, and annual smoking-related costs are estimated at more than $15 billion.

Scientists reported that the tobacco tax is based on one of the most primary rules of microeconomics, the law of demand, which says that "all else being equal, the more you raise the price of a product, the more demand for it will drop".

Taxing tobacco in order to discourage its use is a pretty clever idea. Actually, it goes back a bit further.

When Columbus first brought tobacco back from the New World, rulers were not quite sure what to do. In the 16th century, Murad IV, the sultan of Turkey, decided that tobacco was abusive, and he tried to control it the old-fashioned way, by proclaiming its sale or use penal by death.

But that wasn't a good fortune. In 1604, James I, king of England, tried another approach. Calling smoking "a custom unpleasant to the eye, obnoxious to the nose, injurious to the brain, unsafe to the lungs, and in the black fetid fume thereof, nearest comparing the horrible Stygian (a dark, gloomy, infernal river) smoke of the hole that is fathomless," he imposed a 400% rate on tobacco.

Today almost all states have taxed tobacco products. Meanwhile, all 50 states, of United States of America, have instituted tobacco taxes. They range from as low as 7 cents a pack in the tobacco-growing state of South Carolina to $2.75 a pack in New York, according to the Centers for Disease Control and Prevention. At 87 cents a pack, California's tobacco tax is well below the national average of $1.20 a pack.

There's a fundamental conflict in the tobacco tax: the more efficient it is at discouraging smoking, the less revenue it brings in. Theoretically, if prices get pushed up high enough, many people will stop smoking and the state revenues would decrease, eventually to zero if everyone were to quit.