Essay: Taxes to control smoking

The Centers of Disease Control and Prevention reports that 58 million Americans are exposed to secondhand smoke. This form of exposure is when someone who is not smoking inhales cigarette smoke. From 1988 to 2011 there had been a 62 percent decrease in exposure rates up until recently. Those most prone to be affected by secondhand smoking in disproportionate rates are children, those who fall below the poverty line, those living with a smoker, and those without a high school diploma. The danger in this smoke is that there are more than 7,000 chemicals in the smoke, some that are carcinogens. Not only some chemicals considered carcinogens, this smoke comes with health risks such as asthma, respiratory infections, lung cancer, and heart disease. Those exposed to such smoke or those who have bared the consequences for someone else’s actions is an example of a negative externality. Policies that have been set in place that have show improvement include smoke-free zones, but there are other cases such as implementing a tax.
Taxes in controlling smoking is quite tricky considering the inelasticity of cigarettes. Cigarettes are considered an inelastic good, due to how addictive they are. Elasticity is a measure of responsiveness of one variable to another, meaning that if a good has more elasticity more substitutes are readily available. More substitutes for a given good, allows one to easily replace said good without compromising their wallet. Inelasticity is the opposite, in which even if prices were to increase, people will still want and/or demand a product. A perfectly inelastic good would have a vertical demand curve, indicating that when prices rise there is only a small change in the quantity demanded. Considering that cigarettes are highly addictive, those already hooked, face still buying the product as there are few alternatives for cigarettes. Cigarettes are a relatively inelastic good, that if taxed, would have to be taxed a minimal amount without causing inequalities in the cigarette market between those who can afford them versus those who cannot.
Secondhand smoking is a negative externality, in this case, in consumption, rather than production, meaning that harm has been caused to a third party when one releases the smoke from a cigarette. Negative externalities bear a social benefit that is lesser than the private benefit, in this case the smoker. Normally the supply is measured by the social marginal cost, which also equals the private marginal cost, but since there is a lack in external social benefit, it is less than the private cost. Due to this imbalance, a negative externality like smoking faces a market failure because the individuals doing the harm do not consider the danger they impose on others. Taking into account that smokers are not mindful of others inhaling their smoke, they will continue to increase their utility at the point where the SMC is equal to the PMB. What should occur is that their utility should meet where the SMB equals the SMC, which would benefit society, in this case, those who are exposed.
Taxes on goods creates a burden that falls on either the consumer or the producer. When the tax falls on the consumer, the quantity demanded will decrease as well as producer surplus. On the other hand, when taxes fall on the producer, production costs increase and so supply decreases. Either way, taxes are meant to make either the producer or consumers pay for the good’s social cost. There is more tax revenue as demand becomes more inelastic. If the demand is inelastic and the supply is elastic the burden of a cigarette tax will fall more on consumers as most of the tax revenue is due to the consumer surplus, or willingness to pay. Because the demand for cigarettes in more inelastic than supply, the consumers will face the burden when a reasonable tax is implemented. Not only would consumers face the burden of a tax, but so will the producers as demand will shift. A tax would shift the demand curve to the left and thus result to a surplus of cigarettes, which means an excess of production as smokers buy less. The tax will raise the price of cigarettes, resulting in a deadweight loss as the government is selling this good for a higher amount than the original price.
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