I'm always on the lookout for reasons to advocate a gas tax. Sometimes it is a reach, sometimes it is not. Today, it is a reach: a gas tax can help reduce smoking.
Indiana's plan to raise cigarette tax feared:
Gov. Mitch Daniels has asked state lawmakers to boost Indiana's cigarette tax, which is 55.5 cents a pack, by at least 25 cents. Health advocates are pushing for a $1 increase.
They want to use the proceeds to bolster the state's smoking-cessation efforts and create a health-insurance program for low- to moderate-income Hoosiers.
Health insurance = nonsense (see below).
"A tax increase hurts you when you're only seven miles from the bridge" to Kentucky, where the tax is only 30 cents per pack, said Hesen, whose store is across the street from Silver Creek High. "Cigarettes are a big percentage of our sales."
...
According to the Indiana Family and Social Services Administration, a 25-cent increase would generate $130 million in annual revenue, enough to provide health-care coverage to 120,000 people. A $1 boost would generate $413 million and cover 350,000 people.*
For Daniels, the proposed increase is also about reducing smoking. State health officials estimate a 25-cent increase would lead to a 1 percent decline in adult smoking and an 8 percent decline in youth smoking. They say a $1 boost would mean a 4.2 percent drop in adult smoking and an 18 percent cut in youth smoking.
"No one's out to injure anybody's business," Daniels said last week. "But reducing the second-highest rate of smoking in America is an important public-health issue in this state. Keeping young people from smoking is a very important objective. "
But for some retailers, the debate could be about economic life and death.
Renny Singh, owner of a BP gas station and convenience store at Fifth and Spring streets in New Albany, said many Hoosiers already buy their cigarettes in Kentucky because the tax is so much less -- $2.50 per carton.
Cigarettes are about 70 percent of the store's sales, he said.
"It's going to hurt us a lot" if lawmakers raise the tax, Singh said. "I might just have to quit selling cigarettes."
On Friday, he sold Cory Kaiser of Floyds Knobs, Ind., three packs of Marlboros at $3.63 a pack. Kaiser said he knows he could save money in Kentucky but doesn't want to make the trip.
"But if they go up," he said, "I probably would do it."
...
"They penalize the smokers to get money for more nonsense," said Judy Mauney, 79, of Sellersburg. "They discriminate against smokers."
Mauney drives seven miles once a week to buy two cartons of cigarettes at Mike Walsh Liquor & Cigarettes on Market Street in downtown Louisville.
"I save more than enough to pay for the little bit of gas it takes to do it," she said.
...
Treasa Jaros, ... often buys cigarettes in Louisville even though she manages JC's Cigarette Outlet in Jeffersonville, Ind.
I say this: an increase in Indiana's gas tax might encourage Indiana smokers to support their local smoke shop.
Oh, and insert your favorite Hoosier joke here.
*Hmmm, timeout for fun with newspaper numbers! A $0.25 increase generates $130 million in revenue which means that 520 packs of cigarettes are taxed. A $1 tax increase generates $413 million in revenue which means that 413 packs of cigarettes are taxed. The percentage change in the tax, assuming the current price is $3.63 (see below), is 17.6% (assuming, incorrectly, vertical demand [price rises to $3.88 and $4.63]; any other assumption would require too much work). The percentage change in quantity demanded (Qd) is 22.9%. Since the demand elasticity is the percentage change in Qd divided by the percentage change in P, their revenue projections are using an elastic demand curve (e = .229/.176 = 1.3)? Who has done something wrong? John Whitehead or the State of Indiana?
Also check out the diseconomies of scale in health insurance.
$130 million in annual revenue, enough to provide health-care coverage to 120,000 people.
Average cost = $1083.
$413 million and cover 350,000 people.
Average cost = $1180.
I'm thinking that average costs should fall as more people are enrolled in health insurance. Should I stop thinking?
