Taxation and the Tobacco Industry

Tobacco Industry: Supply and Demand

The tobacco industry has been a heavy hitter for raking in cash from consumers. The many types of taxes that have been placed on the luxury have been in hopes of driving down the smoking population. There have been many campaigns to urge smokers to quit, but the government’s heavy tax on the good is still one of the main reasons why smokers are putting out their butts. But is taxing the consumers enough to put the tobacco industry out of business, or will people continue to buy tobacco products at whatever price the market sets? The majority of the nation is in favor of the high prices, but it is hurting buyers more than the sellers.

Cigarette sales have both a state and a federal tax imposed on the product. The sellers attempt to shove as much of the cost onto the consumer as they can so that they can make the most amount of money possible (Equilibrium, 2006). With consumers still pursuing their smokes and chewing tobacco, they have no choice but to pay whatever the sellers have on the market. There isn’t a strong substitute for these goods, and there are no other products that contain the drug nicotine. There may be many sellers of tobacco, but all of the competition has to endure both taxes, while the consumers shell out more money every year for their harmful habit.

With the government pushing these imposed taxes on producers, and consumers footing the bill, the tobacco market is taking somewhat of a toll. The hope of attracting future smokes has decreased with the increasing taxes being imposed. The tradeoff of having the tax support children’s health care is more appealing to the public, and with a 75-cent increase that much of the nation is agreeing on, it will help to prevent 2.3 million children from ever forming the habit (Dueffert, 2007). The tobacco market for the U.S. is dwindling, but the global market is still running strong on poorer countries that are becoming the largest consumers of tobacco products. Asia alone has more tobacco-related deaths than any other country on the globe (Snuffed Out, 2007).

The tax on tobacco in America is stopping more users from smoking, and the quantity of cigarettes being supplied to stores is decreasing slowly, and will continue to do so the more the government chooses to tax them. Since states can also individually tax these items as well, prices are still sky-rocketing. Because of the nature of the product, a price ceiling would not seem to do any good. But establishing a price floor on tobacco products would possibly make more smokers quit. The cheaper brands would heavily be affected, and because most adults tend to smoke these brands, sales would continue to decline (Dueffert, 2007). If there were to be a price floor for all brands of cigarettes, more people would quit and the demand would decrease even further. The cheaper cigarettes would have to meet the same price standards as the more trendy brands. The price increase would be more damaging