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Economics of Taxes

It is quite entertaining to watch taxes impact the sales of goods in a way that makes the tax collections never meet projected revenue goals.  According to the Wall Street Journal:

“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.”

"Small Cigar" sales plummet due to taxes

“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.”

Seems that our politicians will never learn –  if there is ever any loophole, individuals and businesses will exploit it.  I just wish we could move away from the lobbying and politics that goes along with deciding which goods and services should be taxed at ludicrous rates.  The congressmen surely did not want to have to pay more for their own after dinner cigars, so tax the small cigars instead.

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