Taxes that are placed on cigarettes by the federal government are referred to as cigarette taxes. Included in the taxes are the local and state taxes on the product’s retail price. Cigarettes are taxed at both federal and state levels in the United States, in combination with any local and state taxes on sales and taxes specific to cigarettes. Cigarette taxes have been there throughout the history of America and still prevail up to date. Generally, public officials are in support of the increase in cigarette taxes since it eventually results in reduced smoking rates.
Despite the fact that cigarettes were unpopular in the United States till the mid-19th century, there were still attempts by the federal government to implement tax on products of tobacco like snuff. In the year 1794, the first ever exercise tax on tobacco products was introduced by the secretary of the treasury, Alexander Hamilton. The original proposal by Hamilton passed after key amendment, only to be repealed after a short while with a fundamental impact on the federal budget. Though Hamilton tax on tobacco did not succeed, tobacco taxation went on playing a significant role in the history of America. On 1st July, 1862, exercise taxes were passes by the United States Congress on several items including tobacco (Books, LLC, 2010).
According to Murphy (2006), cigarettes are among the sold products that are highly taxed in the United States. Cigarettes are taxed at both federal and state levels, and this implies that the tax rates may differ from one city to the other. The New York City has the highest rates of cigarette taxes that sum up to a total additional change of 5.26 dollars per pack. Before the year 2009, the federal cigarette tax was only 0.36 dollar per pack. This rate was raised to 1.01 dollars per pack by the Children’s Health Insurance Program Reauthorization on the 1st of April 2009 (Murphy, 2006).
Revenues generated from tobacco taxes are utilized in various sectors. One of the common uses of such revenues is funding education programs and disease research related to tobacco. The other use is in hospital, medical care and treatment of patients who can not afford to pay for the healthcare services. Funding of programs for environmental conservation and fire prevention is the other use of revenues generated from tobacco taxes. A small proportion of the revenue is used to fund programs for encouraging proper childhood growth and development including professional parental training development (Studlar, 2002).
The United States federal cigarette taxes are used to fund the State Children’s Health Insurance Program. This program was developed as a section of the Balanced Budget Act of 1997. The Act led to introduction of a thirty nine percent tax of a single pack of cigarettes to fund the insurance program. State Children’s Health insurance Program aims at insuring children whose parents are not eligible for Medicaid (David and Silva, 2004).
Majority of the public health officials are in support of increase in cigarette tax rates. This is because many research studies have shown that increases rate of cigarette taxes result to reduced smoking rates. There is an extremely elastic association between cigarette taxes and smoking rates. This implies a greater amount of tax increase corresponds to a greater proportion of smokers who quit smoking. This is especially applicable to teenagers. The overall drop in youth smoking rate is approximately seven percent for every ten percent rise in the price of a cigarettes pack. This rate has also been observed among low income population smokers and minority groups (Carpenter, Cook and National Bureau of Economic Research, 2007).
It is important to note that an increase in cigarette taxes provides a win-win solution for majority of the states, especially at their juncture when they are facing a financial crisis and attempting to stabilize budgets and at the same time preserve the primary public services. According to David and Silva (2004), there is a health win since increasing cigarette taxes reduces the rate of tobacco use and smoking, which is beneficial in terms of health. The other win is budget win. States that increase the rate of cigarette taxes enjoy an ample rise in revenue. Moreover, higher cigarette taxes save money through reduction of tobacco-linked health care costs in addition to Medicaid expenses. States can also realize higher cost savings and health advantages through allocation of some revenue to rehabilitation programs aimed at helping people to quit smoking (David, 2004).
There are several economic effects of cigarette taxes. Since the year 1989, over 80 cigarette tax increases have been implemented in the United States. This is according to a Michigan education and research institute called Mackinac Centre for Public Policy. The main objectives of tax increases are to dissuade people from smoking and generate revenue for funding some of the public programs. However, there are complexities associated with increase in cigarette taxes because the economic effects are a combination of both negative and positive aspects (Studlar, 2002).
One positive economic effect of cigarette taxes is that they play the role of reducing tobacco consumption. According to the World Bank, increasing tobacco taxes results to a decrease in the rate of tobacco consumption in young people. Increasing the price of cigarettes by ten percent corresponds to a four percent decrease in cigarette smoking by the general public. This also corresponds to a ten percent decrease in smoking by teenagers or young people. One of the recommendations postulated by the World Bank is the Governments to increase cigarette taxes by more than sixty fiver percent of cigarettes retail price (Carpenter, et al, 2007).
There is a general concern that a decrease in tobacco sales would imply an increase in the rate of unemployment. However, the World Bank thinks that this is not the case because tobacco production is among the smallest contributor of the national economy. Moreover, money spent in tobacco products could be diverted into other economical sectors in reinforcing services and products (Murphy, 2006).
One of the negative economic effects of increasing cigarette taxes is the rise in cigarette smuggling and theft cases. Mackinac Centre for Public Policy has noted that increasing the price of cigarettes increases the instances of cigarette smuggling and theft. Another concern that is worth noting is counterfeiting cigarettes in response to increase in cigarette prices. According to a regulation expert from the public policy think tank Cato Institute, Edward Hudgins, counterfeit cigarettes mot of the times have fillers in place of tobacco. A good example is China which exports counterfeit cigarettes presented in brand names like Marlboro (Hu, 2008). The custom department at the Long Beach harbor states that the amount of counterfeit cigarettes had increased by ten percent between the years 2001 and 2002. This is due to a marked increase in cigarette taxes and prices within this period.
Despite that fact that public health officials and the general public are in support of increase in cigarette taxes, the tobacco industry and its allies strongly oppose the increase. This is because increased cigarette prices are linked to reduced tobacco consumption, which affects the tobacco industry negatively. Hence, cigarette tax increases in the United States are often unsuccessful due to the influence of political contributions and lobbying by the tobacco industry and its allies. For this reason, tobacco control advocates have opted to search for a different venue for policymaking that would prove favorable for the proponents of cigarette taxes increase (Books, LLC, 2010).
One of the alternatives that have been adopted by supports of cigarette taxes increase is the use of ballot measures for enacting taxes through direct popular votes. The policy of ballot measures has mot of the times been used to implement tax polices. Hence, ballot measures are fundamental venue that advocates of tobacco control can use to implement tobacco policies (Carpenter, et al, 2007).
Cigarette taxes are imposed by the federal government. The United States is one of the countries that have increased the rate of cigarette taxes over the last few years. This move has been greatly supported by the general public as well as public health officials. There is a general view that increasing cigarette taxes leads to reduced levels of tobacco consumption and cigarette smoking. Moreover, increasing tobacco taxes provides sufficient revenue that could be used to fund various national programs. However, the tobacco industry and its allies greatly oppose the increase in cigarette taxes due to the fear of losing its market share.
Books, LLC (2010). State Taxation in the United States: Sales Taxes in the United States, Common wealth Edison Co. V. Montana. General Books LLC
Carpenter, C. S., Cook, P. J., & National Bureau of Economic Research (2007). Cigarette taxes and youth smoking: new evidence from national, state, & local youth risk behavior surveys. National Bureau of Economic Research
David, A., & Silva, V. C. (2004). Building blacks for tobacco control: a handbook
Hu, T. (2008). Tobacco control policy analysis in China: economics and health. World Scientific
Murphy, S. D. (2006). United States Practice in International Law; Volume 2; Volumes 2002-2004. Cambridge University Press
Studlar, D. T. (2002). Tobacco control: comparative politics in the United States and Canada. University of Toronto Press