CIGARETTE TAX

Cigarette Tax

Cigarette Tax

Introduction

Cigarette taxes are centuries old, yet they remain a crucial element in the debate surrounding the tobacco industry, smoking, and public health. Taxation began as soon as European governments began importing and trading tobacco in the sixteenth century. These taxes (primarily in the form of import duties) were levied to generate revenue for the government. This is an important role that tobacco taxes play to this day. However, the goals of tobacco taxes have changed since they were first used more than 400 years ago, and their use is not as straightforward as it might seem (Tobacco Institute, 1997). In the 2000s, in addition to raising general revenue, tobacco taxes may also be used as "user fees" paid by smokers to offset the social costs of smoking or as regulation to directly reduce tobacco consumption. Since they can be successful in each role, governments around the world continue to aggressively use them, tempered mainly by issues of fairness and intergovernmental tax avoidance and smuggling (Studlar, 2002).

Following the deficits experienced by most states in America, state authorities are now cashing on any possible options to handle these seemingly ever-growing deficits. One of the areas that many states seem to have placed a focus on is in the area of cigarette taxes. According to a report by Mackinac Center for Public Policy, 27 states have raised their taxes between 2007 and 2010. These rises in tobacco taxes have lead to major differences in prices of the cigarettes between different states. Smokers in Virginia for example are having a good time with a pack of cigarettes costing $4.50 as compared to a smoker in Arizona or New York who has to part with about $13 for the same pack of cigarettes. The highest tax levied on cigarettes is Arizona at a rate of 51.8% with other states such as Rhode Island, New Mexico, New York and California following closely (Townsend, Roderick, and Jacqueline, 2010). Some of the most recent states to join the tobacco tax hike bandwagon are Maine, Alabama, and Louisiana.

Discussion and Analysis

Cigarette, once introduced to Europe in the sixteenth century, quickly became popular. Soon after, governments recognized that it could become a lucrative basis of tax revenues. However, at least one European sovereign sought to reduce its use. In 1604 the king of England, James I, published anonymously a booklet titled Counterblaste to Tobacco, which condemned smoking as a dirty and unhealthy custom (and even pointed out the problems of secondhand smoke). Coupled with this publication was a huge increase on the import duty on tobacco, which raised the rate more than 40 times its original level, from 2 pence per pound of tobacco to 82 pence per pound. This represents the first use of taxation on tobacco to reduce its consumption (United States Department of Health and Human Services, 2000).

The actions of King James had important consequences for the issues of tobacco taxes, tobacco use, and government revenue. To avoid paying the increased tax rate, importers simply ...