by Lance T. Izumi, Fellow in California Studies
Pacific Research Institute
November 1997

Announcer lead: Time for Perspectives. Lance Izumi says that increasing taxes on cigarettes won't always lead to less smoking.

Whenever government tries to dictate people's economic behavior the result is usually dismal failure. Why? According to Milton Friedman, its for the same reason that even the most autocratic head of a family cannot control every act of each family member. Unless commands are supplemented by people's voluntary cooperation, the commands are undermined or ignored.

Take, for example, cigarette taxes. Many state governments have increased cigarette taxes in an attempt, basically, to command people to stop smoking. Yet, in a recent report by the Center for the Study of American Business, economics professor Dwight Lee found that high cigarette taxes haven't had the intended effect.

In 1994, Michigan raised its cigarette tax from 25 cents a pack to 75 cents. A year after the tax increase, legal cigarette sales in Michigan fell 30 percent. The key word here is "legal" cigarette sales. According to the Detroit Free Press, "Michigan's higher tobacco tax has spawned rampant cigarette smuggling." Also, cigarette sales in low-tax states one day's drive from Michigan have skyrocketed. Thus, Prof. Lee notes that even though legal cigarettes sales dropped in Michigan, the percentage of smokers actually increased.

In 1988, California increased its cigarette tax from 10 cents a pack to 35 cents. Legal cigarette sales fell 28 percent. However, with the proximity of low-taxed cigarettes in Mexico, Indian reservations, and military bases, contraband cigarettes began flooding the state. Contraband sales account for up to nearly a quarter of cigarettes sold in California. Prof. Lee concludes that in view of these contraband sales, "smoking in California has not declined since the tax increase by any more than the nationwide average over the same period."

All of this is not to say anything about the inherent goodness or badness of smoking. Rather, it merely demonstrates once again that when government tries to dictate our behavior through the tax system, Americans will find a way to exert their freedom.

With a perspective, I'm Lance Izumi.