As we've reported before, Maryland's cigarette tax is doubling to $2 per pack as of Tuesday. The Washington Examiner lays out the math:
"Sales are going to drop all over Maryland, I'm sure," said Ragu Nanthan, an employee at TJ Beer Wine and Liquors on New Hampshire Avenue in Takoma Park. The regular price for a pack of Marlboros at the shop ran $4.97 on Friday. On Tuesday, that cost will spike to $6.35, he said.
Nationally, the price per pack of cigarettes is expected to hit $4.63 on Tuesday, said Vince Willmore, vice president for communications for the Campaign for Tobacco-Free Kids. In D.C., the average is expected to be $4.64. In Virginia, smokers will pay an average $3.84 per pack.
So, two cartons, with 20 packs and 400 cigarettes, would sell for $127 in Maryland but only $77 in Virginia. Our previous report on illegal cigarette smuggling showed it was on the rise because of high cigarette taxes, and in this case, such an illegal transaction could net the smuggler a lucrative $50, or 65 percent profit. Plus there's online smuggling too.
The Examiner article also quotes a citizens health group that advocated the initiative as a way to "help deter as many as 50,000 children from becoming smokers." But why stop there-banning cigarettes would stop even more children from becoming smokers. The group also is happy that the money raised will go for general health care programs, but again, why hit smokers with a suspiciously round dollar increase to fund general state spending?
Of course, the real reason for the cigarette tax hike is that smokers are a politically unfavored minority that can loaded with higher taxes to fund unrelated government spending programs for the majority. So too with taxing alcohol to fund public transit, taxing bottled water to fund general spending, and taxing video games to fund juvenile detention facilities. And that's just in the last week.
Tax Deductions and the Timing of Babies' Births
There has been a flurry of articles recently regarding the first-borns of 2008. Every article cites the fact that the baby being born on January 1st means the family will not be able to claim the child as a tax deduction and will also not receive the child tax credit for tax year 2007. For simplicity, there is no pro-rated system for exemptions or filing status under the federal income tax. For a family earning less than $100,000 who is in the 15% marginal tax bracket, a baby in 2007 would have saved the family about $1,500. While this may seem a lot, it may be disturbing for some to see the extent to which parents concern themselves with this issue in the delivery room. It has been the case for some doctors to induce birth prior to midnight on January 1 just so the family can get a bigger refund check in three months. (Most likely, there is also the issue of fraud where the doctor could merely backdate the birth.) Is this behavior optimal?
Assuming the parents care about their offspring to the same extent that they care about themselves, then one would expect them to act with more caution in disrupting a pregnancy for the mere purposes of a one-time income gain. On the cynical side, however, if they care about their offspring less than themselves, then some parents would be willing to engage in a relatively high degree of risk to the health of the child in order to obtain a bigger tax refund check.
For more on this phenomenon, check out a New York Times article on the topic last year. There is also some empirical economic evidence on this as well.
A similar issue is scheduled to take place 23 months from now with the estate tax. Under current law, it will be nonexistent in 2010, but will come back in full force in 2011. This could possibly lead to some difficult decisions having to be made in December 2010 regarding the value of one's living a few extra months or years relative to the financial gain to heirs of a zero estate tax bill.
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