Taxation of Cigarettes in New York State
Axia College University of Phoenix
ECO 305 Economic Theory
Ms. Gredta Hubbard
February 1, 2009
Approximately 2.7 million adults living in New York State smoke cigarettes that are roughly 18% of the population (Health, 2008). Smoking is related to many health issues such as: Several types of Cancer, heart disease, lung disease, stomach ailments, dental issues, and psychological issues. These health issues can be very costly. Another problem with smokers is pollution and more health related problems to non smokers due to second hand smoke. As a way to combat rising health costs related to smoking , get current smokers to quit and prevent others from starting city, state and federal lawmakers have chosen to tax cigarettes. Beginning on June 3, 2008 the NY state cigarette tax is being increased to $2.75 per pack, a $1.25 increase (Health, 2008). When you add in the city tax of $1.50, the total tax collected on one pack of cigarettes is $4.25(NYTimes, 2008).
In this case the tax is levied on the consumer. With the initial cost of cigarettes, then add the tax mix in the slumping economy who could afford to pay $8.75 for a pack of cigarettes. The taxes levied by Governor Patterson where done so in the hope of preventing teenagers from starting smoking. Another goal is to have 1 million fewer smokers by 2010 (Health, 2008). This goal can be achieved with the mounting taxes being tacked onto cigarettes.
The tax levied on cigarettes will affect the demand. As the price of cigarettes rise, smoking rates decrease, with expectations that 140,000 of New York City’s 1 million smokers would quit (NYTimes, 2008). That is an estimated total of $665,000. Minimum in taxes and estimated total of $560,000. Minimum in cigarettes total loss.
As the demand decreases, the supply becomes surplus, leaving way possible criminal activity like a black market for cigarettes.