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Have Higher Cigarette Taxes Driven People to Smoke Pipes and Cigars? — Dollars and Sense

cigar
perspective, Flickr

Three years ago, a federal act meant to help reduce the number of people who smoke greatly increased the tax rates for cigarettes, roll-your-own tobacco, and small cigars, counting on the fact that making smoking more expensive would prompt people to quit.

And while it may have caused some to do so, the move had an unintended effect: sales of pipe tobacco and large cigars, which aren’t taxed quite as harshly, have boomed.

The Children’s Health Insurance Program Reauthorization Act (CHIPRA) of 2009 resulted in a more than 2,000 percent bump in the federal tax on roll-your-own tobacco and small cigars, while the tax on large cigars and pipe tobacco only went up about 150 percent.

As a result, the Government Accountability Office report states, “Monthly sales of pipe tobacco increased from approximately 240,000 pounds in January 2009 to over three million pounds in September 2011 [and] large cigar sales increased from 411 million to over one billion cigars.”

The GAO noted some manufacturers of roll-your-own tobacco products have simply re-branded their products as pipe tobacco while making few changes in the products themselves. And the makers of small cigars now just make them bigger to avoid the extra taxes.

The bottom line? The GAO estimates that the new tax structure has resulted in somewhere between $615 million and $1.1 billion less in taxes, writing in its report, “Congress … should consider equalizing tax rates on roll-your-own and pipe tobacco.”

[Forbes]

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