This just in: people still respond to incentives

It appears that the bonanza that the federal government expected from raising taxes on tobacco in 2009 never materialized:

A 2009 law that raised federal taxes to discourage smoking (my comment: yeah, right) cost the U.S. government billions of dollars in lost revenue as manufacturers relabeled products and consumers shifted to cheaper pipe tobacco and large cigars, the U.S. Government Accountability Office said in a report released on Tuesday.

This is the part of the transaction that those in government never account for, as it is unseen.

“Each of the three tobacco manufacturers that agreed to speak with us explained that their companies switched from selling higher-taxed roll-your-own tobacco to lower-taxed pipe tobacco to stay competitive,” the congressional watchdog agency said in the report, which was the focus of a Senate hearing on Tuesday.

At the hearing, Liggett Vector Brands LLC Chief Executive Ronald Bernstein urged lawmakers to take action against abuses by manufacturers.

He held up two seemingly identical, but differently labeled non-Liggett bags of tobacco. Showing a third sample, he pointed out that a label saying “all-natural pipe tobacco” covered up a statement that the bag “makes approximately 500 cigarettes.”

“Everyone knows this is cigarette tobacco,” Bernstein said. “The manufacturer knows. The consumer knows. And I know. I know because I tried smoking it in a pipe and it was not a pleasant experience.”

Some manufacturers also add a few ounces of tobacco to small cigars so they qualify as the larger product. Others even mix in clay or kitty litter to increase the weight, Michael Tynan, policy officer at the Oregon Public Health Division, told the hearing.

The GAO said the tobacco market shifted accordingly. Yearly sales of pipe tobacco rose more than eight-fold from fiscal 2008 to 2013, while sales of roll-your-own tobacco declined almost six-fold.

Over the same period, large cigar sales doubled, while small cigar sales dropped to just 700 million from 5.7 billion.

One cannot simply violate the laws of economics and expect to achieve his desired results.  Not even in Mordor on the Potomac.

 

 

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Categories: Economics, Hmm

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