Cigarette Tax Economics
The Federal Government and each of the 50 state governments have placed an excise tax on the sale of cigarettes. Several states have raised their tax in the past couple of years. ?Currently, Massachusetts has the highest tax at $1.51, and Virginia has the lowest at $.025? (?State excise tax,? 2003). In addition to the state and federal tax, some counties and cities also place a tax on cigarettes. For example, if a smoker buys a pack of cigarettes in New York City, not only do they pay the state tax of $1.50, but they also pay a city tax of $1.50. With the federal tax of $.39, that brings the total tax to $3.39, and pushes the price of a pack of cigarettes to approximately $7.50.
The government places these taxes on cigarettes for two reasons. The first reason is to reduce the number of Americans who smoke. ?Economists Gary S. Becker, and Michael Grossman estimate that a 10 percent increase in cigarette taxes eventually leads to an 8 percent decrease in cigarette consumption? (?Do Higher Cigarette,? 1994). Some other studies have shown the decrease in consumption at 3 to 5 percent.
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