Vice Squad
Wednesday, February 04, 2004
Cigarette Tax Hikes Proposed

Today's Chicago Tribune brings two articles (registration required) concerning cigarette taxes. The first article reports on tobacco policy recommendations made by a panel that includes four former surgeons general. The panel called for various measures to reduce smoking, most notably, a $2 per pack increase in the federal excise tax on cigarettes. The second article notes that just yesterday, an 82 cent per pack increase in Cook County's cigarette tax was given preliminary approval by the Cook County commissioners. According to the second article, current per pack tax levels are as follows: (1) federal, 39 cents; state of Illinois, 98 cents; Cook County, 18 cents; and City of Chicago, 16 cents. So the two proposed tax increases combined would add $2.82 per pack to the tax bill for cigarettes purchased in Cook County.

I support fairly stiff cigarette taxation, even though such taxes are regressive in the US, as lower income people tend to smoke at higher rates than do rich people. (Not everyone seems to be so supportive.) But I nevertheless think that another $2.82 per pack in taxes in Chicago would likely be going too far, given the opportunities for evasion. Canada raised cigarette taxes considerably between the mid-1980s and early 1991, and the prevalence of smoking in Canada responded with a huge decline. With Canadian prices for cigarettes approximately twice the US level, however, smuggling became commonplace, and in 1994, the Canadian government rolled back the cigarette taxes, at least in part to combat smuggling. (On the Canadian case, see Chapter 4, by David Sweanor and Ken Kyle, of the 2003 World Bank book Tobacco Control Policy: Strategies, Successes and Setbacks. Incidentally, World Bank books are sold at a 75% discount in India. Will smuggling require a modification of this book subsidy? Finally, my support for sizeable cigarette taxes is based on my overall view of the goal of public policy towards potentially addictive substances: choose policies that are robust to departures from full rationality in decisionmaking, and in particular, look for policies that can be beneficial to those struggling with self-control problems, while not significantly burdening those whose consumption decisions relating to potentially addictive substances are fully rational.)

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