Skip Navigation

Cigarette Taxes and Smoking

December 22, 2014
By Kevin Callison and Robert Kaestner

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?

two tumblers with liquor and a lit cigarrette

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. 

Article Tags
Alcohol & Tobacco Taxes