The Sin Tax: Using Taxation to Influence Demand

Taxation of Cigarettes and the Impact on Consumption

Much has been made in recent years of reducing the amount of tobacco consumption within the United States. As more and more studies come out reaffirming the dramatic health impacts that smoking and exposure even secondhand has on a person’s life expectancy along with the added cost to the community and tax payers through increased medical bills, there is a push towards limiting the consumption of these items and dissuading the purchase. An important tool in this fight is the use of the “Sin Tax.” Such a tax is a tax introduced on socially proscribed goods or services. Such goods include not just tobacco and alcohol, but also things such as candies and soft drinks.

These taxes are placed on these goods due to their negative impacts on public health. For cigarettes, smoking increases the mortality rate by three times for both male and female consumers. A smoker has an estimated life span that is 10 years shorter than a non-smoker. Smoking is thought to contribute to 480,000 deaths annually in the United States alone and remains a major public health concern, with smoking being attributed to over $133 billion in direct medical posts and $156 billion in lost productivity. Smoking is the leading cause of preventable death within the United States today. However, quitting smoking before turning 40 reduces the risk of dying to a smoking related disease by 90%. This has led to an effort to reduce and discourage cigarette consumption within the United States today.

Source: http://weblog.saardrimer. com/index.php/a-bit-on-cigarette-warnings_198/

The tax is placed upon the consumers of the cigarettes and varies state to state. The average cost of a pack of cigarettes in the United States in 2013 was $6.18. Of this price, 25% is due to the tax placed upon the consumer on average. The average tax being $1.54 across all states, which includes an average of only $0.485 for the major tobacco states. These taxes increase the price per pack of cigarettes, and due to the law of demand one expects a smaller demand to be the result.

The question remains, how much of an impact is this taxation having and who is feeling the impact of the tax the most within the consumer base? There have been a number of studies investigating the impact of the taxation. All studies agree that overall taxation decreases cigarette consumption, with an estimate of a 10% price increase decreasing consumption by 3-5%. The greatest impact is seen within youth and lower class consumption, two areas which lack the disposable income to ignore the increased cost that the tax provides. These results lend towards a positive outlook for the impact of the taxation of cigarettes and the attempt to curb public consumption. Since cigarettes are an addictive item, reducing the consumption within youths has a rippling impact as they grow up being less likely to become smokers.

The implementation and use of a tax to help solve health problems within society is a powerful tool available to governments today. With the recent debates regarding legalization of recreational marijuana in society, the idea of a Sin Tax on the consumers of marijuana is likely to brought up. And with the success of taxing tobacco, such a tax has a historical basis for success.


Works Cited:

Bader, Pearl, David Boisclair, and Roberta Ferrence. “Effects of Tobacco Taxation and Pricing on Smoking Behavior in High Risk Populations: A Knowledge Synthesis.” International Journal of Environmental Research and Public Health. Molecular Diversity Preservation International (MDPI), n.d. Web. 23 Feb. 2015.

“Economic Facts About U.S. Tobacco Production and Use.” Centers for Disease Control and Prevention. Centers for Disease Control and Prevention, 06 Feb. 2014. Web. 11 Feb. 2015.

Local/ta. STATE CIGARETTE EXCISE TAX RATES & RANKINGS (n.d.): n. pag. Campaign for Tobacco Free Kids. Web.

“Sin Tax.” Wikipedia. Wikimedia Foundation, n.d. Web. 23 Feb. 2015.

“Tobacco-Related Mortality.” Centers for Disease Control and Prevention. Centers for Disease Control and Prevention, 06 Feb. 2014. Web. 21 Feb. 2015.

“2014 Surgeon General’s Report: The Health Consequences of Smoking—50 Years of Progress.” Centers for Disease Control and Prevention. Centers for Disease Control and Prevention, 26 Jan. 2015. Web. 23 Feb. 2015.


One thought on “The Sin Tax: Using Taxation to Influence Demand

  1. taylorqjohnson says:

    It is interesting to hear that one of the negative externalities of smoking is a loss in productivity. I wonder if any goods other than cigarettes cause people/workers to become less productive.


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