Tobacco.org

• GOLDBERG : Where there's smoke there are taxes 

How does the tobacco tax work? Who does it help and who does it harm? Below, some questions and answers to help frame the debate.

What's the chief argument for hiking the tobacco tax?

That it's a good tax. Business taxes have negative consequences: They drive companies and jobs out of the region. High income taxes make the state a less desirable place to live. Sales taxes can stifle commerce.

But tobacco taxes are different. They raise revenues and simultaneously serve the public good by reducing smoking, at least in theory. That's not insignificant in a state where about 13.3 percent of residents smoke, where there are more than 30,000 smoking-related deaths each year, and annual smoking-related costs are estimated at more than $15 billion.

Can raising taxes really change behavior?

Yes. The tobacco tax is based on one of the most fundamental rules of microeconomics -- the law of demand -- which says that all else being equal, the more you raise the price of a product, the more demand for it will drop. Conversely, if you reduce the price, more people will buy, use or, in this case, smoke the product. . . .

Demand for tobacco is not perfectly inelastic, just relatively inelastic. Studies have shown that higher prices do persuade many smokers to stop. Especially poor people (who have more incentive to quit when prices go up) and younger smokers (who are both less addicted and more price-sensitive). . . .

With me so far? Cigarettes, you'll recall, have a price elasticity of roughly -.4.

So multiply the 33 percent price increase by -.4, and you learn that it will reduce the demand for cigarettes by 13.2 percent.

They can really tell that?

Obviously, it's not exact. . . .

It's certainly true that tobacco taxes are regressive. But poor smokers are also more likely to benefit, because they are more likely to quit as a result of the tax. . . .

So what's the bottom line?

There aren't that many taxes that do good while raising money.

The gas tax, which discourages driving, is another example. Don't rule them out!

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