Health Care And Increasing In Taxes On Cigarettes - Term Paper Example

Health Care And Increasing In Taxes On Cigarettes Introduction In recent years, most states have increased taxes on tobacco to assist in reducing their budget deficits. Economists have viewed this effect as a win-win situation as it has positive health effects and also a budget effect. There is a general agreement among policymakers that raising taxes on tobacco would result in a reduction of consumption. Nevertheless, there is still evidence that smoking is practiced widely. From the year 1990 to 1998, research showed that tobacco taxes increased by nearly 20%, which had an effect of reducing consumption. Over the recent years, tobacco use has increased irrespective of the rise in taxes (Arnold 128). The availability of evidence regarding the relationship between cigarette consumption and tobacco taxes is inconsistent with the wide support for increased taxes as a way of reducing smoking. This paper seeks to discuss the effects of raising taxes on tobacco focusing on negative unintended consequences. Would cigarette taxes have the desired effect of reducing the demand for cigarettes? Tobacco taxes on users in the form of increased cigarette prices can be been noted as one of the most efficient population based way to decrease demand. An increase in price of a cigarette pack with 10% would result in a decrease, in demand, by about 4%. With regard to cigarette taxation, there have been increases in tax by various governments as a way of controlling the consumption of cigarettes and in essence reducing demand. In order to understand the effects of tax increases on cigarette use, there is a need to know two things; the magnitude of results that the tax change will cause and the link between the consumption changes and price change (Taylor & Akila 94). Economists and researchers have been using estimates of price elasticity of demand, which refers to the change in percentage of consumption, consequently from a 1% increase in price, to evaluate the effects of change in prices of cigarette on cigarette consumption. Overall, the price elasticity for a cigarette is within the range of -0.14 to -1.23, but mostly it falls within the narrower range of -0.3 to -0.5. This implies that a change in price of tobacco will result in a slight decrease in demand. In spite of the fact that higher cigarette taxes reduce sales or consumption, cigarette tax income increases because the loss in income as a result of lower sales is more and could be offset by the increased taxes (Cordes 440). Policy makers in the tobacco control department and tax revenue docket will always agree that, provided the price elasticity of demand for cigarettes is not more than -1, then total revenue from sales increases when price increase. As evidenced in this study, the price elasticity of demand for a cigarette is less than one, meaning that in as much as tax will have an effect on the demand for cigarette consumption, it will also yield additional tax revenues. The passing into law of tobacco control policy with the increasing prices will eventually have significant results in reducing tobacco consumption, making cigarettes expensive to juveniles (Besanko et al 151). Do increases in cigarette taxes have any other effects? In response to the increased taxes on cigarettes, some problems can be seen to be rising. They include theft, interstate smuggling and channeling. Channeling primarily describes the changes in ways people obtain a product they seek. Making one by rolling it is a good example. The most serious one of the three above is smuggling. Smuggling can be related to moving goods across international borders to avoid paying tariffs or duties for the product. There are commonly five characteristics of a product that are likely to be smuggled somewhere for a profit. They include the product tax differential; transaction cost; transportation cost; the effort required to obtain the product and the possibility of police or authority intervention. Cigarette thus makes the perfect product for smuggling. The product is not heavy and has large tax differentials between different locations (Cordes 441). The other unintended consequence of tax increase is the presence of counterfeit products. Counterfeit products are substandard products that look just like the original. This would result in the makers earning good money by applying market prices but having used less money to make that product. Criminals also steal and smuggle cigarettes to get quick money to finance their projects. Since they take advantage of the price differentials in locations, they end up making huge profits used in buying heavy machinery and equipments like surveying equipments, advanced aircraft analysis and design software, global positioning systems, drilling equipments and many more. Government agents are urged to be keen as some of these supplies purchased from their countries could be bought from smuggling cigarettes. It is also considered important that officials be given the responsibility to legislate laws with regard to tobacco so as to understand the possible effects and consequences of a slight increase (Gallup 330). What do governments spend cigarette tax revenues on? Every state that has noticeably raised its cigarette tax has benefited from a substantial increase in profits and, on the other hand, reducing demand. Increased tobacco taxes could be seen to be saving money by cutting tobacco associated health care costs. Government can gain greater health benefits and at the same time save costs by allocating some revenue to projects and programs that reduce and prevent smoking and also assist smokers quit. Governments do not always disperse all the funds gathered from cigarette taxes to health associated issues only. Some of the money is also used in filling gaping holes in budgets by adding tobacco tax fund to the governments’ general ledger. State and national polls systematically have found big public support for increasing tobacco tax. Polls indicate that, with regard to balancing budgets, voters favor raising cigarette taxes than raising other commodity taxes or cutting important programs like public safety and education (Besanko et al 151). How much of the tax collected goes to programs designed to help people to stop smoking? Over 50 states have enacted laws raising cigarette taxes with various objectives in mind. Many states have decided to invest in programs that could be aimed at sensitizing the public about the dangers of smoking, prevent new entry of smokers and also help those who smoke quit. In the US, Massachusetts State has one of the highest taxes on cigarettes charging $2.51 on every cigarette pack. This usually generates to millions of revenue and a portion of it dedicated to anti-smoking programs. It can be estimated that 30% of the revenue collected from the tobacco tax increase goes to anti- smoking programs. How much of it goes to increased health care costs due to smoking? The federal government spends approximately $ 1 trillion on programs dedicated to healthcare each year. Therefore, there is a need to enact policies that assist in promoting healthy living and reducing levels of smoking. These estimates reflect the determination and focus of the federal government in eliminating smoking. Therefore, the intervention by policies made to improve healthcare programs can be viewed vital to the fight against smoking (Viscusi 63). Conclusion Most, if not all, of the 50 state governments have passed into law tax increment policies on cigarettes. In conclusion, rising, the tobacco tax is beneficial both to the government and to the user in terms of health. Increased taxes, therefore, reduce the number of people who smoke and smoking- related illnesses. Policymakers also should be careful to enact laws that ensure the unintended consequences like smuggling could be minimized with respect to tax increases. Works Cited Arnold, Roger A. Microeconomics. Mason, OH: South-Western Cengage Learning, 2010. Print. Besanko, David, Ronald R. Braeutigam, and Michael Gibbs. Microeconomics. Hoboken, NJ: John Wiley, 2011. Print. Cordes, Joseph J. The Encyclopedia of Taxation & Tax Policy. Washington, D.C: Urban Institute Press, 2005. Print. Gallup, Alec M. The Gallup Poll: Public Opinion 2004. Lanham, Md. [u.a.: Rowman & Littlefield, 2006. Print. Taylor, John B, and Akila Weerapana. Principles of Economics. Mason, OH: South-Western Cengage Learning, 2012. Print. Viscusi, Kip. Smoke-filled Rooms: A Postmortem on the Tobacco Deal. Chicago: University of Chicago Press, 2002. Print. Read More