Taxation and the Tobacco IndustryTaxation and the Tobacco IndustryTobacco Industry: Supply and DemandThe tobacco industry has been a heavy hitter for raking in cash from consumers. The many types of taxes that have been placed on the luxury have been in hopes of driving down the smoking population. There have been many campaigns to urge smokers to quit, but the government’s heavy tax on the good is still one of the main reasons why smokers are putting out their butts. But is taxing the consumers enough to put the tobacco industry out of business, or will people continue to buy tobacco products at whatever price the market sets? The majority of the nation is in favor of the high prices, but it is hurting buyers more than the sellers.
Cigarette sales have both a state and a federal tax imposed on the product. The sellers attempt to shove as much of the cost onto the consumer as they can so that they can make the most amount of money possible (Equilibrium, 2006). With consumers still pursuing their smokes and chewing tobacco, they have no choice but to pay whatever the sellers have on the market. There isn’t a strong substitute for these goods, and there are no other products that contain the drug nicotine. There may be many sellers of tobacco, but all of the competition has to endure both taxes, while the consumers shell out more money every year for their harmful habit.
With the government pushing these imposed taxes on producers, and consumers footing the bill, the tobacco market is taking somewhat of a toll. The hope of attracting future smokes has decreased with the increasing taxes being imposed. The tradeoff of having the tax support children’s health care is more appealing to the public, and with a 75-cent increase that much of the nation is agreeing on, it will help to prevent 2.3 million children from ever forming the habit (Dueffert, 2007). The tobacco market for the U.S. is dwindling, but the global market is still running strong on poorer countries that are becoming the largest consumers of tobacco products. Asia alone has more tobacco-related deaths than any other country on the globe (Snuffed Out, 2007).
The tax on tobacco in America is stopping more users from smoking, and the quantity of cigarettes being supplied to stores is decreasing slowly, and will continue to do so the more the government chooses to tax them. Since states can also individually tax these items as well, prices are still sky-rocketing. Because of the nature of the product, a price ceiling would not seem to do any good. But establishing a price floor on tobacco products would possibly make more smokers quit. The cheaper brands would heavily be affected, and because most adults tend to smoke these brands, sales would continue to decline (Dueffert, 2007). If there were to be a price floor for all brands of cigarettes, more people would quit and the demand would decrease even further. The cheaper cigarettes would have to meet the same price standards as the more trendy brands. The price increase would be more damaging
The Bottom Line: Why should the tax be so much lower?
As stated before, for smokers, high taxes on tobacco are actually a good thing. When they see their prices go up, they will be persuaded to quit. A large portion of our nation’s high school seniors smoke more than once a day (e.g., to make up for the high costs of college). In fact, tobacco companies will continue to have the biggest presence in high schools (Stern et al., 2015), making this issue a key issue in state legislatures. When teens buy tobacco products, many of them want them to be “obtained by them”, rather than “smoked and inhaled”. The government would probably only tax the cigarettes they purchase, and not the “products” they buy (Stern et al, 2015). Smoking and inhaling are both good things! But for teens today, the tax proposal for marijuana may be a “hope the government will drop taxes” position. There’s a great discussion going in as to what kind of health benefits marijuana can expect, and how many young people will actually benefit from it. For teens to “grow up” or “get a handle on a little thing” can be very costly (Stern et al, 2015)—due to the negative effects of chronic use (Heller et al., 2010). The government would likely want teens to be able to choose the more healthful drug over the other, or not know that what really costs is what harms (and is “invisible”).
The Bottom Line: Why should the tax be so much higher?
More people would probably smoke a great deal of tobacco and would quit (due to increased spending and the fact that they must). But higher taxes are not going to make people switch over to other alternatives to smoking. A tax on tobacco would allow for smaller increases in cigarette taxes to fund things that increase health for people who smoke more.
I encourage many people to try different options—for example, to pay a higher tax on cigars and cigarettes to get rid of the smoke and see how that impacts them. Taxing cigarettes less will reduce smokers’ spending. It will increase money for people with certain medical conditions and is a good policy to pay to reduce smoking, especially for those with a lower income.
More information about tobacco and youth benefits can be found in the Substance Use and Mental Health Services Administration’s National Tobacco Survey.
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