According to the latest issue of SmokeFree Air, here are some sample tobacco taxes around the world:
The table is a little misleading, because it shows only U.S. federal tax. For the comparison to be fair, you would add state taxes, which range from 2.5 cents in Virginia (for a total there of 26.5 cents) to a more typical 20 to 45 cents in states like California, Colorado, Florida, Illinois, Iowa, Ohio, Pennsylvania, Texas and many others, up to the top tier — Connecticut, New York, Arizona, Hawaii, Rhode Island, the District of Columbia, Oregon, Michigan, Massachusetts, and Washington — which range, in ascending order, from 50 cents up to a whopping 82 cents (for a total tax of $1.06).
Cigarette taxes hit hardest those with the least money — children and low-income adults. Studies have shown that high prices lower smoking among kids. And while one recoils at tax hikes on the poor, this one is a little different. Not only can anyone avoid it — hard as it is to overcome the addiction, it can be done — there are two rewards for doing so. First, longer life and better health. Second, significant financial savings, because not only are you avoiding the tax, you’re avoiding the underlying cost of the cigarettes themselves. For a typical smoker, that might come to $700 a year.
Just as the tax falls most heavily on the poor, so would those savings bring them the most benefit. Seven hundred bucks doesn’t mean much to somebody earning $80,000 a year, but it sure can make a difference to someone at the minimum wage earning $10,000.
So if we were to raise our federal tobacco tax — perhaps to help rescue Medicare — the poor would be most likely to quit as a result, reaping the most significant gains.
A tax hike, though it would reduce consumption, would still raise money. A simple example shows why. Say we added $1 to the federal tax. If consumption fell by a third, the government would be collecting five times as much federal tax on two-thirds as many packs, which works out to about 350% as much as now. If this helped save Medicare, helped keep kids from becoming smokers, and helped low-income people, especially, to live longer, healthier lives and save money, it might not be the worst tax hike we ever imposed.
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That I'm their competition.~Famed hedge fund manager Michael Steinhardt, when asked the most important thing an investor could learn from him.
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