Article

Maryland Tobacco Tax Increase Is a Big Win for Kids and Health; State Must Now End Sale of
Flavored Tobacco Products
WASHINGTON, Feb. 12, 2021 /PRNewswire/ -- The Maryland legislature today delivered a
resounding victory for kids and health by overriding the governor's veto and enacting
a $1.75 per pack increase in the state cigarette tax. The cigarette tax increase is a win-win-win
solution for Maryland – a health win that will reduce smoking and save lives, a financial win that
will raise much-needed revenue and a political win that polls show is popular with voters. We
applaud the legislative champions and local public health groups for their leadership in fighting
tobacco use – still the No. 1 cause of preventable death. We hope this action provides
momentum for Maryland to soon end the sale of all flavored tobacco products, which is
another critical step to stop tobacco companies from targeting and addicting kids.

Cigarette smoking damages nearly every organ in the human body and greatly harms overall
health, including by increasing risk of respiratory infections. Maryland's actions to prevent kids
from smoking and help smokers quit could not be more timely. The evidence is clear that
raising the price of cigarettes is one of the most effective ways to reduce smoking, especially
among kids. The $1.75 cigarette tax increase is projected to:

• Prevent 15,300 Maryland kids from becoming smokers

• Spur 32,600 current adult smokers to quit
• Save 12,700 Marylanders from premature, smoking-caused deaths
• Save over $970 million in future health care costs.

In addition to increasing the cigarette tax, the new law also increases taxes on various other
tobacco products, including e-cigarettes and vaping liquids. Importantly, lawmakers approved a
significant increase in funding for the state's tobacco prevention and cessation program –
from $10 million to $18.25 million annually. Such action is especially critical given the growing
evidence about the impact of smoking and vaping on COVID-19.

We strongly urge the legislature to finish its work on flavored tobacco products and end the
sale of all flavored e-cigarettes, flavored cigarettes, and menthol cigarettes.

While Maryland has made great progress, tobacco use still claims 7,500 lives and costs the state
more than $2.7 billion in health care bills each year. In Maryland, 12.7% of adults and 5% of
high school students still smoke cigarettes, and 23% of Maryland high school students currently
use e-cigarettes. By increasing tobacco taxes and its investment in tobacco prevention and
cessation programs, Maryland can accelerate progress in reducing tobacco use and improve the
state's health for generations to come. Ending the sale of all flavored tobacco products is
another critical action the state must take.
 Commentary

Maryland has implemented taxes on cigarettes, e-cigarettes, and other tobacco

products. Cigarettes, being a negative consumption externality, are the #1 cause of

preventable death. The consumption of cigarettes has a negative effect on healthcare

costs and society. Cigarettes are also considered demerit goods which are harmful to

the consumers in Maryland. The key concept that is taken is choice because in

Maryland’s case, it is the freedom to buy cigarettes without the issue of tax.

=MPC

In the cigarette market, the production is at Q, this means that there is an overallocation

of resources in the cigarette market. The optimum quantity for production is at Q1

because it is the socially desirable amount as it intersects MSB. An intersection in MSB

is when it is more beneficial to society.

 =MSC

An indirect tax is imposed on the cigarettes in Maryland. The indirect tax allows the

price to increase to P1 and the Quantity decreases to the socially optimal. When such a

tax is imposed on the cigarettes in Maryland, the result is a decrease in supply and an

upward shift on the supply curve (from MPC to MPC + tax). Q1 is the socially optimum

quantity and price increases from P to P1. The tax therefore permits allocative efficiency

to be achieved. The reduction of quantity from Q to Q1 causes allocative efficiency.

There are many problems that also arise due to the implementation of the tax in

Maryland on cigarette. The tax imposed is of $1.75, Maryland has estimated the

proportional decrease in demand and in costs. Around 15,300 Maryland kids, 32,600
adults will stop smoking after the tax and will save 12.700 people from premature

deaths. There is also an expected savings of more than $970 million in future health

care costs.

Maryland’s legislation has also increased the funding from $10mil to $18.25mil to prove

that they are serious in attempting to stop kids from consuming cigarettes. There will

also be an investment of the tax into the tobacco prevention cause to further the cause.

The tax implementation has also led to an increase in popularity, guaranteeing the party

votes.

C
A

Figure 2

Maryland’s imposition of taxes also decreased the consumers and producer surplus.

The consumer surplus decreasing means that the benefit they now get is lower due to
an increase in price of cigarettes. The producer surplus decreasing means that the

benefit that the producers received from selling cigarettes at a higher price has become

lowers. This disincentivizes both parties, while the government, has now increase their

revenue and have benefitted. The triangle ABC formed shows the welfare loss that has

occurred due to the taxes. The welfare loss signifies that there is a loss to society

because Maryland is not able to allocate their resources efficiently.

The tax increase by $1.75, however, may not affect the consumers decision due to the

inelasticity for demand of cigarettes because 12.7% of adults and 28% of high school

products are still using tobacco products. Maryland has also predicted the decrease in

consumptions in a time span and savings made in healthcare. According to Maryland,

the taxes should help save the lives of many people in the future.

The decrease in quantity of cigarettes produced may lead to other issues. Workers may

lose their jobs because of this as lower quantity produced would mean lesser workers

needed, ultimately increasing Maryland’s unemployment rate.

Interestingly, Maryland’s final goal is to get rid of cigarettes as a whole throughout the

whole state. This may not be as easy as it sounds because a motion to do so would

upset the entire industry and the overall market. I do believe that since it involves the

entire market, it would affect the consumers, producers and the government itself.

Consumers involved in this industry would strongly oppose it because they are addicted

to cigarettes and even if the legislation proceeds with it, the consumers will purchase

the same product illegally or through the black market. The shops selling cigarettes
would lose a stream of income and the main company producing cigarettes may face

major losses because of this. Due to the forecasted losses that the company would

make, they would decide to decrease workforce to cut costs, this would negatively affect

the workers as well. The legislation themselves would not do it because it would

negatively impact the government’s revenue earned. The political party involved would

gain political popularity from non-smokers but would also receive backlash from avid

smokers due to the two-faced opinions of this decision.

Nonetheless, Maryland’s decision to increase taxes for cigarettes, an inelastic good, will

be beneficial to most parties involved to some extent. The government will increase

their revenue, the consumers would find alternatives to get the cigarettes while

producers and workers will be worse off.

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