Cigarette Taxes and Smoking
What if, however, higher cigarette taxes do not have much effect on cigarette consumption? Would the public still support tax increases, particularly when the resulting revenue comes predominantly from low-educated, low-income persons?
What if, however, higher cigarette taxes do not have much effect on cigarette consumption? Would the public still support tax increases, particularly when the resulting revenue comes predominantly from low-educated, low-income persons? that question is not simply theoretical because there are plausible reasons to believe that, in the current high-tax environment, additional cigarette tax increases will have relatively little effect on smoking. Consider who currently smokes: at roughly $6 per pack (with approximately $2.50 of that tax) and after large increases in cigarette taxes over the last decade or so, those who smoke have revealed that they have strong preferences for smoking. Accordingly, it is reasonable to expect that further tax increases may have little effect on cigarette consumption.
Additionally, there is increasing concern over the regressivity of cigarette taxes. Compared to national smoking rates of 20.5 percent for men and 15.8 percent for women, more than a third of men and nearly a quarter of women with earnings below the federal poverty level were current smokers in 2012. Not only are people in poverty more likely to smoke, but they also devote a much larger share of their income to cigarette purchases. From 2010 to 2011, smokers earning less than $30,000 per year spent 14.2 percent of their household income on cigarettes, compared to 4.3 percent for smokers earning between $30,000 and $59,999 and 2 percent for smokers earning more than $60,000.
In this article, we summarize a study we conducted that focuses on the effect of recent, large cigarette tax increases on the smoking behavior of adults ages 18–74. estimates from our study suggest that the association between cigarette taxes and either smoking participation or number of cigarettes smoked is small, negative, and not usually statistically significant. in terms of a price elasticity of demand, our estimates imply an elasticity of –0.065, which is one-fifth to one-tenth the size of the widely cited estimates offered by the CtCre. Our substantially lower estimates of the responsiveness of cigarette consumption to changes in taxes (or prices) alter the basic cost and benefit calculation of cigarette taxes. For example, our estimates suggest that a $1 increase in federal cigarette taxes, as proposed by President Obama in his last budget, would reduce smoking by less than 1 percent. In sum, our study suggests that future cigarette tax increases will have relatively few public health benefits, and the justification of future taxes should be based on the public finance aspects of cigarette taxes such as the regressiveness, volatility, and rate of revenue growth associated with those taxes.