ung cancer has been one of the deadliest diseases caused by excessive consumption of tobacco. The government has responded to the rising levels of tobacco consumption by slapping a highly exploitative tax to both the tobacco farmer and the cigarette’s manufacturer. The question that stems out of this line of thinking aims at establishing a relationship between the rate of cigarette smoking and cigarette tax. For this research, we shall hypothesize that the higher the rate of cigarette taxation, the lower the smoking rates in the United States of America. The reasoning that leads to the development of this hypothesis is in accordance to the law of demand that states that, the higher the price of commodities the lower the consumption levels. Higher taxation levels are expected to increase the prices of the respective commodities. Some of the issues expected to shed some light on this topic include the impact of tobacco taxes and prices on the demand levels of cigarettes. This will be possible to access through the determination of a possible correlation between the two variables. Secondly, we shall use a measure of the proportion of individual income spent on the purchase of cigarettes. Previous studies have shown that a change in price leads to less than proportionate decline in the level of demand hence, the price elasticity of demand stands from -0.3 to -0,5. In this research, we shall determine the relationship between price and the level of cigarette demand.

Background

Ramsey’s rule holds that consumption taxes should be applied to those goods that enjoy low price elasticity. The major reason for this is to allow for minimization of the welfare losses associated with the taxation of such goods. In the recent past, many countries have moved to increase tobacco tax to reduce the levels of tobacco consumption. A good example is the United States where the welfare loss associated with tobacco far much outweighs the benefits that are associated with it. The agenda of the increased costs is that, the tobacco users should bear the full costs associated with the consumption of tobacco. However, they assume that the social costs arising can be quantified in monetary terms and their equivalents determined. A major topic that relates heavily to this topic is the use of tobacco tax as part of the public health policy. This is supported strongly by the externality costs that come along with the use of tobacco. However, this research aims at establishing the impacts of the taxes on the tobacco.

The history of cigarette smoking

In the United States, one can say that tobacco tax is much older than tobacco smoking. This is in the light that, tobacco law was developed out of the development of tobacco products such as snuff back in the late 18th century. It was not until mid-19th century that cigarette smoking became popular among the citizens. Alexander Hamilton introduced the first tobacco law in 1794 as the secretary to the treasury. The introduction of this law on tobacco products was successful as many amendments. It composed of major modifications that were repealed after it was realized that they had minimal impact on the federal budget. Despite the failure of this law, Hamilton’s idea of tobacco taxation remained a major topic and subject to the history of tobacco taxation in the United States.

Almost a decade later, the House of Representatives passed a major law on many similar products among them, tobacco. The passing of this law was aimed at raising funds that would be used in debt servicing after the union had acquired increasing debts over time. The law, passed in July 1, 1862 could not last as a whole. Shortly after the civil war financing was over, most of the substances that had been passed alongside tobacco were repealed but incidentally, tobacco remained as one of the substances that had to be regulated by the law. The tax revenues emanating from tobacco taxation was the government’s main source of revenue in the year 1868.

The federal government was the only entity that had imposed an exercise tax on tobacco until the 20th century when Iowa became the first state to enact a law to exercise tax on tobacco. This new tax was in addition to the federal tax making the taxation of tobacco gain significant weight on the producers. By the year 1950, about 40 states had enacted legislation to levy taxes on tobacco. The entire United States and Columbia district had enacted tobacco tax by the year 1969. Several other cities had also put in place their own citywide cigarette tax that aimed at collecting tax for the jurisdictions. Among these cities, we have New York and Chicago among others. New York had the highest levels of tobacco tax in the entire United States with a $1.5 levy on the city tax and $4.55 rate on the state and local level. The state of Missouri had the least tobacco taxes listing 17cents, far below the list of many other countries.