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aceventura3 · 07-25-2007, 08:48 AM

Quote:

Originally Posted by dc_dux

Pan....there is no evidence to support your conclusion.

The evidence from the last federal cigarette tax increase (10 years ago) and the many state cigarette tax increases in the intervening 10 years, may have resulted in a small decrease in the number of user (or those who went to the black market), it resulted in more revenue in every case.

There is some evidence.

Quote:

As smoking rates in the country have gone down, cigarette excise taxes have gone up.

In 1970, the highest tax levied by a state was 18 cents a pack (88 cents after adjusting for inflation) versus today's high of $2.46 a pack. Since then, the number of smokers in the United States has declined from 37.4 percent to 22.5 percent.

When it comes to raising a state's cigarette tax, "you have to think there's some ceiling as to how high you can go," said Harley Duncan, executive director of the Federation of Tax Administrators.

The assumption has been that when cigarette prices go up 10 percent, sales decline by 4 percent. And that held true as late as 2003, after several states raised their cigarette tax in response to declining state tax revenue, Duncan said.

But given the rise in Internet sales and cigarette smuggling, he thinks the equation needs to be revisited.

In addition, Duncan said, "Our job as tax enforcers is to see if there are actions that could be taken to reduce evasion, to prevent bootlegging."

Quote:

Economist Richard E. Wagner of George Mason University contends that when a state's cigarette tax is significantly higher than a readily available alternative source, it is counterproductive in more ways than one.

It should be noted that in the early 1990s, Wagner received a grant from the Tobacco Institute to coauthor the book "The Economics of Smoking" and the Institute had asked him while he was a professor at Florida State University to testify before Congress.

However, Wagner said he did not receive any funding for the paper on which this article is based.

In "State Excise Taxation: Horse-and-Buggy Taxes in an Electronic Age," Wagner argues that a high cigarette tax:

Pushes smokers to cross state lines to purchase cigarettes or to break the law by buying them underground.

In recent years, the illegal trade of cigarettes has been growing via smuggling and Internet sales. Investigations by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) have found that millions of dollars each year from such sales are funneled to organized criminals.

What's more, a General Accounting Office report notes that according to officials at the U.S. Immigration and Customs Enforcement Agency, states with high cigarette taxes are typically those that lose cigarette tax revenue to smuggling.

"As a result, data on taxed sales no longer track actual consumption in any useful way, and revenue estimates of future tax rate changes will be even less reliable than they already are," Wagner writes.

http://money.cnn.com/2005/07/12/pf/t...cise/index.htm

One of the problems with "black market" activity is that it is very difficult to measure.

According to the Heritage Foundation study (the methodology use is here: http://www.heritage.org/Research/Hea...48-methods.cfm)
your information is correct with higher taxes more tax revenue will be collected in the short term, but there is price elasticity, as shown by the differing slopes under the proposed and current tax rates as shown in the chart below. Also it is clear that the tax with have to be replaced, increased or new smokers are needed.

http://www.heritage.org/Research/HealthCare/wm1548.cfm