Tag: tobacco tax

The Laffer Curve Bites Ireland in the Butt

Cigarette butt, to be specific.

All over the world, governments impose draconian taxes on tobacco, and then they are surprised when projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and we’ve seen this Laffer Curve effect in Washington, DC, and Michigan.

Even the Government Accountability Office has found big Laffer Curve effects from tobacco taxation.

And now we’re seeing the same result in Ireland.

Here are some details from an Irish newspaper.

[N]ew Department of Finance figures showing that tobacco excise tax receipts are falling dramatically short of targets, even though taxes have increased and the number of people smoking has remained constant… [T]he latest upsurge in [cigarette] smuggling … is costing the state hundreds of millions in lost revenue. Criminal gangs are openly selling smuggled cigarettes on the streets of central Dublin and other cities, door to door and at fairs and markets. Counterfeit cigarettes can be brought to the Irish market at a cost of just 20 cents a pack and sold on the black market at €4.50. The average selling price of legitimate cigarettes is €9.20 a pack. …Ireland has the most expensive cigarettes in the European Union, meaning that smugglers can make big profits by offering them at cheaper prices.

I had to laugh at the part of the article that says, “receipts are falling dramatically short of targets, even though taxes have increased.”

Estimate: Massachusetts Diverts 99% of Tobacco Money to Other Causes

From this weekend’s Lawrence (Mass.) Eagle-Tribune
Millions of dollars originally intended for smoking cessation programs in Massachusetts have been diverted to offset budget deficits, leaving the state struggling to fund quit-smoking hotlines, treatment programs and anti-tobacco advertising, the New England Center for Investigative Reporting has found. … 
 
“Roughly 99 percent of all the tobacco dollars that come into the state are used for something else,” said Stephen Shestakofsky, recently retired executive director of Tobacco Free Massachusetts, an anti-tobacco advocacy group. He was referring to the nearly $254 million in tobacco-related legal awards given to Massachusetts in 2012. More than $561 million in tobacco taxes was also collected, bringing the state’s total tobacco tally to just over $815 million, the CDC reports.
On the one hand, it’s not as if I’d urge the state of Massachusetts to sink vast sums into the paternalist project of hectoring its citizens to quit, especially not at a time when its taxpayers are already having to foot a steep tab for its RomneyCare health insurance experiment. On the other hand, we can now see that it was the purest pretense for attorneys general in states like Massachusetts to have portrayed the Great Tobacco Robbery settlement of some years back as motivated by a supposed need for new “public health” outlays, as opposed to sheer plunder and the interests of the various lawyers involved.  
 
That’s worth remembering next time you hear a proposal to extract large sums from the food industry (either through taxation or, as some in the legal profession would like, by suing them for it under some creative theory) with the promise that funds will then be earmarked for anti-obesity efforts. In practice, after voters’ attention wanders, funds ordinarily get earmarked for the advancement of the political interests of those in power.  
 
More on the late-1990s Medicaid-tobacco settlement from Cato chairman Robert Levy here, here, here, and in his book Shakedown, and from me here, here, and in my book The Rule of Lawyers

Higher Taxes for Health Care, Fewer Jobs

President Obama broke his pledge not to raise taxes on lower- and middle-income families with his large tobacco tax increase back in February. It appears that the increase is not just hurting tobacco consumers, but also hurting workers in the cigar industry. From Tampa Bay Online:

Tampa will lose part of its cigar heritage in August when Hav-A-Tampa shuts its factory near Seffner and lays off about 495 employees, closing a factory that has been operating since 1902.

Several things conspired to hurt Altadis’ sales, McKenzie said, including the recession and the growth of indoor smoking bans. The bans have especially hurt sales in cold-weather states, where it’s impractical to smoke a cigar outdoors in the winter, he said.

However, the company attributed much of its trouble to the State Children’s Health Insurance Program, or SCHIP, a federal program that provides health insurance to low-income children. It is funded, in part, by a new federal tax on cigars and cigarettes. McKenzie couldn’t say how much sales of Hav-A-Tampa cigars had fallen off, but the numbers have dropped significantly, he said.

Previously, federal excise taxes on cigars were limited to no more than a nickel, said Norman Sharp, president of the Cigar Association of America trade group. The tax increase, which took effect April 1, raises the maximum tax on cigars to about 40 cents, Sharp said.

This health-tobacco legislation raised taxes $65 billion over 10 years. Imagine the damage that would be caused by the giant health bill currently moving through Congress, which will cost $1 trillion or more over 10 years.

Hat Tip: Tad DeHaven