E-cigarette taxation: Lessons from “sin taxes”

The Economist points out:

Smoking, in contrast, probably saves taxpayers money. Lifelong smoking will bring forward a person’s death by about ten years, which means that smokers tend to die just as they would start drawing from state pensions. In a study published in 2002 Kip Viscusi, an economist at Vanderbilt University who has served as an expert witness on behalf of tobacco companies, estimated that even if tobacco were untaxed, Americans could still expect to save the government an average of 32 cents for every pack of cigarettes they smoke.

Truth on the Market

The Economist takes on “sin taxes” in a recent article, “‘Sin’ taxes—eg, on tobacco—are less efficient than they look.” The article has several lessons for policy makers eyeing taxes on e-cigarettes and other vapor products.

Historically, taxes had the key purpose of raising revenues. The “best” taxes would be on goods with few substitutes (i.e., inelastic demand) and on goods deemed to be luxuries. In Wealth of Nations Adam Smith notes:

Sugar, rum, and tobacco are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.

The Economist notes in 1764, a fiscal crisis driven by wars in North America led Britain’s parliament began enforcing tariffs on sugar and molasses imported from outside the empire. In the U.S., from 1868 until 1913, 90 percent of all federal revenue came from taxes on liquor, beer…

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This entry was posted in applied price theory on by .

About Jim Rose

Utopia - you are standing in it promotes a classical liberal view of the world and champion the mass flourishing of humanity through capitalism and the rule of law. The origin of the blog is explained in the first blog post at https://utopiayouarestandinginit.wordpress.com/2014/03/12/why-call-my-blog-utopia-you-are-standing-in-it/

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