Tuesday, November 06, 2012
Sometimes a Laffer is just a Laffer
I've tried to point out how the ideas of both Laffer and Keynes are misused by their respective partisans.
However, Laffer's curve, properly used, can be an excellent predictor. In cases where the public has a practical choice of evading a specific tax, there is undoubtedly an inflection point, a point of negative return. And Wash has gone way beyond that point on taxing cigarettes.
The Mackinac Center for Public Policy in Michigan ... studied cigarette smoking in most of the 50 states. Mackinac found that 36 percent of all cigarettes consumed in Washington are contraband. "The bottom line here is that many governments are making tobacco products as valuable as illicit narcotics," said Mackinac's Michael LaFaive. In 2010, as the financial crisis mounted, Washington state increased its cigarette tax by a dollar a pack, now the fourth highest state tax in the nation. The Washington Department of Revenue is about to release its own study of cigarette tax evasion. Spokesman Mike Gowrylow doesn’t expect the state’s figures to be as high as Mackinac’s. He expects it will put the number of contraband cigarettes at about one in three.Well, one in three is pretty much the same thing as 36%, isn't it?
In the state’s last estimate in 2011, 94,000,000 packs of contraband cigarettes were consumed. At $3.02 per pack, that’s a tax loss of $284,000,000 per year.In other words, about 1/4 of the state's deficit last year was caused by raising the cig tax. = = = = = Later thought: Of course it's entirely possible that the tax was intended to move more cigs into contraband channels. In this part of the country, nearly all the contraband smokes are sold by Indian tribes. Most of the state's legislation is shaped to suit the tribes, who have more money and political influence than anyone except Microsoft. ¶ 3:23 PM
