How to Succeed in Business Without Really Trying

Yours truly was recently a guest of New York City while it suffered through a pretty devastating hurricane. Thankfully, I am fine. The worst thing that happened to me was that I gained a few pounds from binging on Oreos and flying home in day-old clothes. Considering what happened to a lot of people in New York, I got off light.

While I was in New York, a gentleman approached my father and offered him $1 for one of my father’s cigarettes. My father declined and I realized that there are people willing to pay $1 for a single cigarette. Cigarettes are addictive, but this display of demand still took me by surprise.  What this indicates is that demand for cigarettes is pretty inelastic.

This is important because one of the arguments in favor of raising taxes on cigarettes is that it will cause smokers to quit, but if the gentleman I encountered in New York is any indication, raising the tax might not get as many people to quit as tax hike proponents believe. At the very least, if someone is willing to offer $1 for a single cigarette, how effective would a 90 cents per pack tax be in deterring smoking?

It is possible that the high cigarette tax in New York encouraged this gentleman to seek cigarettes from sources other than a convenience store (New York state imposes a $4.35 per pack tax on cigarettes). Yet raising taxes by so much brings with it its own set of problems, among them being the incidents of cigarette smuggling that occur in high tax jurisdictions. It is not the government’s job to change people’s behavior through the tax code. If my experience in New York is any indication, it will have a difficult time doing so.