If You Tax Something, You Get Less of It....
WSJ -- "Last year, Congress sharply increased the federal excise tax on "little" cigars—filtered, often sweetly favored products that are similar in size and shape to cigarettes. Some manufacturers responded by increasing the weight of their little cigars so they qualified as conventional, "large" cigars, which are taxed at lower rates. Now, a surge in sales of the small, inexpensive cigars is attracting the scrutiny of members of Congress and a prominent anti-smoking group, who say that tobacco manufacturers are exploiting this tax loophole.
Currently, little cigars—those weighing three pounds or less per thousand—are taxed at the same rate as cigarettes, about $10.07 per carton. But cigars heavier than three pounds per thousand are taxed at 52.75% of the manufacturer's price, resulting in taxes of only about $2 to $4 per carton for the smaller products in this bracket. Many small cigars already weighed almost three pounds per thousand before the tax increase, so some manufacturers needed only to modestly increase the amount of paper, filter or tobacco in their cigars to meet the higher threshold.
In the 14 months since the excise-tax increase, sales volumes of cigars classified as large more than quadrupled to 12.3 billion units. Sales of products listed as "little" cigars fell by 79% (see chart above)."
MP: This is Econ 101. Couldn't they have predicted this would happen? See previous, related CD post here.
HT: Jonathan Butcher