Cigarette Tax Debate

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The Cigarette Tax Debate and the American Economy |

Managerial Economics |

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Raising Cigarette Tax: Is it the right thing to do for America? The debate over this issue is on with lawmakers desperately trying to keep Americans happy during this time of economic crisis. There is a push to bolster states’ income by raising the tax on cigarettes and other tobacco products. Some experts say raising tobacco tax is a win-win situation, while others argue that it is grossly unfair for low and middle income people. In addition to this being a hot economic topic there is also the issue of health and the effect rising prices of cigarettes will have on smokers. After analyzing all sides of this issue there is no clear winner in this debate.

From my own knowledge, I know the tax on cigarettes is called excise tax. An excise tax is leveraged on those products and services that are not necessary for survival; similar to a luxury item. Excise taxes are also classified as a regressive tax which means it is the opposite of progressive tax such as income tax. Regressive tax will tax everyone the same percentage regardless of the person’s ability to pay. Progressive tax is based on a person’s ability to pay.

The first step in analyzing the cigarette tax debate is to take a look at the history of tobacco regulation. It was just as confusing and complicating for our forefathers as it is for us today Taxes on tobacco products have been around for a long time. Alexander Hamilton’s tax package of 1794 proposed the first federal excise tax upon tobacco products. A heated opposition to this was led by James Madison. His views were summarized in the “Annals of Congress” on May2, 1794. “As to the subject before the Houses, it was proper to choose taxes the least unequal. Tobacco excise was a burden the most unequal. It fell upon the poor, upon the sailors, day-laborers, and other people of these classes. While the rich will often escape...