Taxation on Cigarettes Essay

1105 Words 5 Pages
The federal tax on tobacco products and in particular, cigarettes, has received considerable debate in both the United States House and Senate. At this time, the proposed new tax rate is $1.00 per pack or an increase of 61 cents. The current federal tax on a single pack of cigarettes is 39 cents (Tobacco Free Kids, 2007). Congress last voted to raise the tax on cigarettes in 1997 when it passed a 15-cent increase. This tax went into effect in January 2000 by 10 cents and the additional 5 cents followed in January 2002. This is a selective excise tax. The first federal tax of cigarettes occurred in 1960. The amount was 8 cents while the cost of a pack of cigarettes was 28 cents. The tax was one-third the price paid by consumers. At …show more content…
Of course, if the federal government raised the additional revenue by a federal tax increase, then the largest tax burden would fall on the wealthiest in America. A strong argument for taxation on tobacco products is that all taxpayers share the burden of increased healthcare for the individuals who choose to smoke. The bottom line is that no matter the tax, one economic group will suffer more than another will. This type of tax affects both consumers and producers. The tax could be more on the producers if the consumers demand for the product is less because of the increase. As the price of the cigarettes increases, the demand from consumers decreases. Then as the net price received by the producer falls, they will supply less of the product. “This will result in a backward shift in the supply curve.” (Entin, 2004) The demand will decrease while the price will increase and the profits to the producer will decrease unless they add an additional cost to the consumer to make up the difference in revenue that is lost because of the new tax levy. Another point that needs mentioning is that in the past, when the tax on cigarettes has increased, crime has risen in the stealing and illegal importation of cigarettes. In some countries, a pack of cigarettes costs a mere $1.75, whereas the same pack costs $7.50 in the United States, depending upon the tax rates that are applied from federal and state taxes. The black market

Related Documents