We all know that alcohol prohibition was great news for organized crime in the 1920s, and we also know that drug prohibition is causing widespread societal destruction today, but taxation also can facilitate criminal behavior. Specifically, there is considerable evidence that punitive taxes on cigarettes promote criminal activity. Here’s a video from Michigan’s Mackinac Center.
Archive for the ‘Tobacco’ Category
Posted in Fiscal Policy, Laffer Curve, Supply-side economics, Tax avoidance, Tax Compliance, Tax evasion, Taxation, Tobacco, Underground Economy, tagged Bulgaria, Dynamic Scoring, Fiscal Policy, Incentives, Laffer Curve, Romania, Static Scoring, Supply-side economics, Taxation, Tobacco, Underground Economy on August 29, 2010 | 31 Comments »
In the private sector, no business owner would be dumb enough to assume that higher prices automatically translate into proportionately higher revenues. If McDonald’s boosted hamburger prices by 30 percent, for instance, the experts at the company would fully expect that sales would decline. Depending on the magnitude of the drop, total revenue might still climb, but by far less than 30 percent. And it’s quite possible that the company would lose revenue. In the public sector, however, there is very little understanding of how the real world works. Here’s a Reuters story I saw on Tim Worstall’s blog, which reveals that Bulgaria and Romania both are losing revenue after increasing tobacco taxes.
Cash-strapped Bulgaria and Romania hoped taxing cigarettes would be an easy way to raise money but the hikes are driving smokers to a growing black market instead. Criminal gangs and impoverished Roma communities near borders with countries where prices are lower — Serbia, Macedonia, Moldova and Ukraine — have taken to smuggling which has wiped out gains from higher excise duties. Bulgaria increased taxes by nearly half this year and stepped up customs controls and police checks at shops and markets. Customs office data, however, shows tax revenues from cigarette sales so far in 2010 have fallen by nearly a third. …Overall losses from smuggling will probably outweigh tax gains as Bulgaria struggle to fight the growing black market, which has risen to over 30 percent of all cigarette sales and could cost 500 million levs in lost revenues this year, said Bezlov at the Center for the Study of Democracy. While the government expected higher income from taxes in 2010 it has already revised that to the same level as last year. “However, this (too) looks unlikely at present,” Bezlov added. Romania, desperately trying to keep a 20 billion-euro International Monetary Fund-led bailout deal on track, has a similar problem after nearly doubling cigarette prices in 2009 then hiking value added tax. Romania’s top three cigarette makers — units of British American Tobacco, Japan Tobacco International and Philip Morris — contributed roughly 2 billion euros to the budget in taxes in 2009, or just under 2 percent of GDP. They estimate about a third of cigarettes in Romania are smuggled and say this could cost the state over 1 billion euros.
No, that’s not the name of a new TV series. We should be so lucky. Instead, it’s a good description of the government’s approach to tobacco. Instead of letting adults make up their own minds about costs and benefits of risky choices (which includes most things in life, such as crossing a street and eating a cheeseburger), nanny-state officials have decided to investigate menthol-flavored cigarettes. And since the Food and Drug Administration has been given authority over the tobacco industry and since the FDA’s supposed purpose is to ensure drugs are “safe and effective,” that almost certainly means this latest campaign will lead to either further restrictions on free speech or outright bans. Here’s a blurb from the Wall Street Journal:
Congress last year added the tobacco industry to the FDA’s regulatory mix and today a panel of health experts making up the agency’s new Tobacco Products Scientific Advisory Committee is kicking off a two-day meeting. First on the agenda: how menthol flavoring in cigarettes affects smokers’ habits. Small wonder that menthol is getting early attention, says the New York Times, which notes menthol butts account for almost a third of the $70 billion U.S. cigarette market. After more meetings, the advisory panel will send recommendations to the FDA, which could eventually decide to ban menthol products or take steps to curtail their marketing.
One can only wonder how far down the slope we will slide. There already are attacks against fatty foods and sugary soft drinks. Both provide pleasure to many people, but that no longer means much in Washington. Will regulators, either at the FDA or elsewhere, eventually decide that anything linked to obesity must be regulated and/or taxed? And now that government is going to pick up the tab for an even larger share of health costs, how long before the politicians use obesity-related costs as a major justification for further efforts to control our private lives? Maybe some day we will have a Federal Health Police to enforce daily exercise mandates? I better stop now before I give them any ideas.