Let’s review: As prices on a product go up, demand for a product decreases. As prices for a product go down, demand for a product increases. It’s basic economics.
Florida is just the latest place where that’s happening. To close a gap in the state budget, the legislature is considering raising the cigarette tax. Being no fan of smoking, I’ve got zero problem with that. The problem, though, is that they want to raise the tax to balance the budget.
Governor Crist, who had been totally against the idea, is changing his tune. Though purported dead as of this writing, the proposal lingers in the hallways of the legislature like the stench a smoker typically leaves behind in an elevator.
Efforts to increase the tax by a dollar are gaining support as the budget continues to fall. Even Governor Charlie Crist is changing his tune from a definite No to “not as yet.”
Of course, the data suggests what economics tells us. If they raise the price, less people will smoke.
While the tax may not be popular among smokers, studies show that for every 10 percent increase in the price of a pack teen smoking drops seven percent and four percent fewer adults pick up the habit.
Note the spin: less people will smoke if they raise the tax. Precisely. Which is good. Except it is not good when trying to balance a budget because it will come up short.
Florida is in a bind with its budget. But resorting to bad economics to patch the budget hole is just going to cause new holes later. In tough economic times, it’s an even dumber idea to tax products as a means of revenue generation. People already inclined to slow purchases will do it even more.