Why a Tobacco Tax is Great News for Smokers
by Byrne Hobart
Nobody feels more strongly about high taxes than smokers do, and with good reason: it’s incredibly easy for politicians to raise taxes on smoking, and the average non-smoker doesn’t have a lot of sympathy. So it’s no surprise that the news is full of stories about planned cigarette tax hikes.
But why is it so easy to raise taxes on smokers? Why not bottled-water drinkers, car owners, or life insurance buyers? The reason is simple: cigarettes have the combination of addictive power and brand loyalty. Very few smokers give up if the cost of their smokes goes up 10% — in fact, basically no other product has the long-term resistance to price changes.
It’s also popular among people who don’t smoke. Most people are pretty happy to hear that someone else’s vices are getting punished. In fact, people are willing to believe that smoking will get rarer if the price goes up (even though, so far, that has been only slightly true).
So what should smokers think of this? If you spend much time reading about taxes, you’ll find plenty of resentful smokers tired of paying so much per pack — but notice that they’re still paying, and will continue to pay even when prices go up.
Smokers might feel like they’re getting ripped off, but there’s another way to think about it: someone willing to pay 10% more for cigarettes is someone who’s been getting cigarettes for less than he thinks they’re worth. And if indefinitely higher cigarette prices don’t make someone decide to give up now, the deal is even better.
And one last consolation before you light up: so long as you’re taxable, you’re an asset. At a time when bonds are defaulting, income taxes are bumping into incomes of zero, and property taxes are slumping, people keep on spending money on smokes. Which means that even if most voters hate you, politicians are going to make sure that you can still smoke.