Smoking: A Costly Affair Now?

Topics: Tax, Nicotine, Taxation Pages: 5 (891 words) Published: November 23, 2013
Smoking: A Costly Affair Now?
Ref. No.: QM0009

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Smoking: A Costly Affair Now?

“An estimated 440,000 Americans die each year from diseases caused by smoking. Smoking is responsible for an estimated one in five U.S. deaths and costs the U.S. over $150 billion each year in health care costs and lost productivity.”1

– American Lung Association

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On April 1st 2009, the US government had spiked the federal cigarette-tax rate from 39¢ to $1.01 per pack. As smoking had been taking toll on human lives, the anti-smoking advocates welcomed the administration’s move stating that it would save an

estimated 900,000 lives. However, some of the
Exhibit I
smokers worried about raising cost of their habit
Worried Smokers
(Exhibit I).
This kind of taxation is often called as ‘sin tax’,
as it was mainly imposed on vices like gambling,
drinking and smoking. Recent hike in sin tax
expected to stop around 2 million kids from trying
to smoke for the first time and prompt almost 1
million adults to quit.

The sin tax had historical roots since 1500s. Pope
Leo X had taxed the licensed prostitutes. Peter the
Source: “Can Raising the Tobacco Tax Reduce the Number of Smokers?”, http://www.bjreview.com.cn/forum/txt/2009-02/10/content_177671.htm, February 12 2009 Great levied tax on men who grew beards.
American sin taxation began with the proposal of
an American patriot, Alexander Hamilton, who proposed taxation on alcohol to contain its consumption and simultaneously to raise the revenues for the government (Exhibit II). th

“Smoking Cessation Resources Fact Sheet”, http://www.lungusa.org/site/c.dvLUK9O0E/b.44456/k.7B2A/ Smoking_Cessation_Resources_Fact_Sheet.htm, July 2004

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This case study was written by Thalluri Prashanth Vidya Sagar, IBSCDC. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was compiled from published sources. © 2009, IBSCDC.

No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner.

Background Reading: Chapters 8 and 9, “Testing Hypotheses: One Sample Tests” and “Testing Hypotheses: Two-Sample Tests”, Statistics for Management 7th Edition (Richard I. Levin and David S. Rubin)

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Smoking: A Costly Affair Now?

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In China too, the State Administration of Taxation and the University of California (Berkeley) had released a report titled Tobacco Tax and Its Potential Impact on China. In December 2008, they asked the Chinese government to increase substantially the tax rate on cigarette to reduce cigarette consumption in China.

Exhibit II
Legislating Morality

Alexander Hamilton advocated taxing “ardent spirits” in Federalist No. 12

1794

US liquor tax sparks the Whiskey Rebellion

1864

To raise money for the Civil War, US authorities levied federal cigarette tax of up to 2.4¢ per pack for the first time in the US history

1963

Annual per capita cigarette consumption among US adults peaks at 4,345

2005

Nine Democratic Senators introduced an unsuccessful bill that would have imposed a 25% tax on purveyors of online pornography

2009

Amid a public outcry, New York Governor, David Paterson backtracks on plans to raise taxes on goods ranging from downloads of pornography to sugary soft drinks.

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1787

Source: Altman Alex, “A Brief History Of: Sin Taxes”, http://www.time.com/time/magazine/article/ 0,9171,1889187,00.html, April 2nd 2009

Experts estimated that an increase of 51% of the retail price would reduce as much as 13.7 million smokers and save the lives of 3.4 million. It was also estimated that the tax rate could generate as much as 64.9 billion yuan ($9.5 billion) per annum as additional revenue for the government. All the experts unanimously agreed on the issue of raising tax rates to...
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