I have a Google News Alert for “cigars,” and every morning, I sift through the headlines to see what I’m going to cover here at Cigar Reader – and what I’m going to read for the hell of it. What caught me this morning was an opinion piece in a Pennsylvania newspaper, The Times Leader, of Wilkes-Barre. “State tobacco tax is a no-brainer” couldn’t be more wrong about the effects of a significant tobacco tax, largely because it relies on an assumption that is not only faulty but easy to believe.
When the numbers are crunched on the impact of a tobacco tax, they assume that spending behavior won’t change. So, if you spend $10 per cigar now, you’d spend $13 post-tax. Basically, the assumption is that you’ll absorb a 30 percent price increase without cutting back the number your purchase or moving to a less expensive cigar. The average smoker may be willing or able to absorb a bit of a price increase, but eventually, it comes to an end. And that’s when sales start to fall.
A drop in cigar sales hits the state’s coffers in several ways. The first, of course, is that sluggish sales generate less tobacco tax revenue. If my threshold is $10 a day, I’ll likely move to a cheaper cigar post-tax, meaning that I’d get lesser cigar at the same price.
Expected tax revenues fall.
When this happens, the tobacconist’s revenues fall, with revenue-plus-tax equaling the previous revenue level. This hit can squeeze margins and require tough decisions, like layoffs or whether to stay open at all. Jobs are shed, and more people become unemployment statistics. Other taxes suffer, as well. Income taxes drop when people wind up unemployed, and businesses that have to shut their doors don’t supply tax revenue of any kind.
Tobacco taxes are counterproductive. Not only do they fail to produce the revenues anticipated by lawmakers, they threaten small businesses. Budget gaps do need to be filled, and “sin” taxes are attractive. Unfortunately, they just don’t work.
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Tags: cigar taxes, cigars, Pennsylvania, taxes, tobacco taxes, Wilkes-Barre
