The Cigarette Tax That Didn’t Work

Photo courtesy of
‘This Is Gonna Kill Me (Again)’
courtesy of ‘M.V. Jantzen’

Buried in today’s paper was the report by Natwar Gandhi that said the District’s increase in per-pack cigarette taxes was a dismal failure, causing DC smokers to head to MD and VA for their nic fix, and it ended up costing DC revenue.  Of course, since political theatre is always farce, let’s take a look at the new Tobacco-Free Kids report, which suggests that DC could raise another $6.8M just by raising the cigarette tax another dollar.

Now, I’m no math whiz, but it sounds like a $0.50 hike cost the city money, and now you’re trying to tell me that we could make more money only if we taxed them even more? Sorry, Charlie, that don’t fly with me.  I think the only way that would work is if all the surrounding states were to increase taxes at the same time, an outcome that is so unlikely, the DC Lottery should consider that as a new game on which to bet.  

Nice job, Tobacco-Free Kids.  Apparently you’re not much for the mathematics here.

I live and work in the District of Columbia. I write at We Love DC, a blog I helped start, I work at Technolutionary, a company I helped start, and I’m happy doing both. I enjoy watching baseball, cooking, and gardening. I grow a mean pepper, keep a clean scorebook, and wash the dishes when I’m done. Read Why I Love DC.

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17 thoughts on “The Cigarette Tax That Didn’t Work

  1. Yeah… this is a little more complicated than you’re making it out to be. I’m going to assume that there’s a economist or two behind their study, whereas your analysis seems to chalk the issue up to linear algebra.

    Consider that you’re potentially effecting the way people vote before you write something like this off with a snarky line or two.

  2. Chances are, Kyle, that we’re *affecting* it, but yeah. Tax hikes like these, though, aren’t made at the polls, they’re done in the council chambers, at least last time, the doors were closed as well.

    This is a complicated situation, probably best to whip out the big word for what this is: arbitrage. It is cheap and easy to get to MD and VA from DC, and the effect of raising DC’s smoke tax was that people would cross state lines to pay less for this object. Sure, some people are going to be lazy and will buy their cigarettes from the corner store, and revenue from those purchasers will increase, but folks will also likely cross over to MD or VA to buy things and that will represent lost revenue. Tax in DC right now is $2.50 according to that study, and it was $2 before the hike, same as in MD.

    One does not need to be a University of Chicago-trained economist to understand that sometimes, increases in taxation cause decreases in revenue, especially when it’s a sales tax in a tri-state market where taxes did not evenly increase.

  3. I agree, it was (mostly) a good response. I’m not trying to argue that a tax hike would be effective for DC, just that you seemed to flippantly dismiss the issue. Saying that an organization that put together what looks like a fairly comprehensive report is “apparently not much for the mathematics” just doesn’t seem like the right way to approach the topic. Your reply shows that you’ve thought about this, why not throw a sentence or two in to temper the post a little?

    As for nitpicking grammar in a comments section- you’re the author of the post, you should be above that. Particularly when what you posted, which I would assume is edited, still has a typo in it. I’m not trying to play swords with you here, just saying you should hold your blog to a higher standard. Not necessarily with regard to typos as everyone makes mistakes, just the quality of what you post.

  4. Kyle – unless you can show me where my logic is wrong here (that increasing taxes in DC while failing to increase them elsewhere will actually generate additional revenue for DC) I’m failing to see where the argument is.

    I also fail to see where the typo you’re referring to is located, but it’s been a long day.

  5. “which suggests that DC could raise another $6.8M just ***buy*** raising the cigarette tax another dollar.”

    Not trying to stoke any fires.. I just love proofing!

  6. Considering lowering tax rates usually results in an increase of tax revenue…yeah, brilliant. You raise rates and people find loopholes and ways to get out of it, lower rates and people become more complacent with paying it. We see it with income taxes as well.

    Then again, I’m just a silly tax accountant.

  7. New York’s high cigarette taxes is the reason why you see such a vibrant black market in that product.

  8. Democrats have never seen a tax they don’t like. Cut wasteful spending? Of course not, just increase taxes. DC has the highest income/sales/user/property taxes in the whole region and it can’t even plow its own streets. Home rule is a failure.

  9. Isn’t the real question whether the increased tax has reduced smoking at all in DC?

    I’m pretty sure even a minor reduction in smoking is worth more than whatever tax revenue was lost. The money saved in public health care expenditures as a result should also be considered.

  10. I’m generally pro things that reduce smoking, I’m definitely on-record as being anti-smoking in public, however this tax was put forward on financial grounds that were not played out, and I suspect that further increases may decrease revenue further still.

  11. Do you really care more about how this was sold than whether less people are smoking or not?

    What about the smoking related health care costs for the city?

    “Suspect” is definitely the right word here. Next time your libertarian streak suggest taking a swipe at Tobacco Free Kids, why don’t you go kick a puppy instead.

  12. Actually I do care how it was sold. This was sold as a revenue boosting measure, pure and simple. Their math turned out to be absolutely wrong. Revenue increasing measures have to be independent of long-term cost savings measures, especially when it comes to matters of deficit reduction.