Clear Fog Blog

Political musings from Warren E. Peterson

Tobacco Regulation and Taxes

Posted by Warren Peterson on June 15, 2009

President Obama will sign the new law regulating tobacco products. If successful, the long-term effect will be a dramatic reduction in cigarette smoking. This is good news for those with health, air pollution and litter concerns. But, and there is always a “but”, the minuses, almost all economic, are significant. Tobacco farmers, manufacturing, distribution and sales workers will all lose their livelihood. Government, especially the states, will drop mega bucks in tobacco tax revenue, almost $15 billion in 2006 for the states.

Not a problem for the Feds, they’ll just print or borrow money to fill the gap. States, however, which generally must balance their budgets, will have to pass new taxes or reduce spending (unlikely) to make up for lost tobacco taxes. Since sin taxes on booze and gambling are already high, don’t be surprised if legalizing and taxing recreational drugs like marijuana is proposed as a tobacco tax replacement. Libertarians and anti War on Drugs folks would be supportive. Liberal politicians would like it. A zoned out populace would be more malleable in the hands of the Nanny State. Winners all around, yes indeed, don’t be surprised.

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2 Responses to “Tobacco Regulation and Taxes”

  1. Fred Churchill said

    I think you misread the proposed legislation. FDA will now REGULATE the tobacco industry, not eliminate it. Smokers, and those inclined to start, will not be subjected to as much slimy marketing from manufacturers, and the purchase of tobacco products are likely to continue to fall, but you’ll have to find another way to segue to liberal bashing since that tobacco tax revenue is not going away any time soon.

    But on the subject of finding new tax revenue, estimates of the size of the marijuana market in the US range from $50B to $100B per year. For comparison, the beer market is about $100B. A 5% tax associated with federally regulated and state controlled sale of the weed could bring incremental state and federal tax revenue of several billion dollars annually. (And the state of Washington would get a disproportionate share based on Seattle consumption alone!!)

  2. Classic tobacco cigarettes are so pass, hooray for the revolutionary electronic cigarette and e-cigar! ^^

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