Images (70)
Showing first 60 of 70 pages.
Document
| id |
id
26413719
|
|---|---|
| contentType |
contentType
document
|
| source |
source
import
|
Source image fields (6)
Extracted text
OCR Page 1 of 70July 18, 1997
OTHER ALTERNATIVES
Moving beyond the structure of the settlement, several other alternatives exist that could be used
and that would boost government receipts:
1. Higher excise tax
One way to boost prices, reduce use, and capture additional government revenues is to impose a
higher excise tax on cigarettes. It is widely accepted that teen smoking (and overall smoking as
well) declines as the price increases -- yet total revenues would actually increase.
Rough estimates indicate that a $1 increase in the excise tax on cigarettes would generate
about $15 billion in additional tax revenue each year -- and at the same time generating a
38% decline in overall cigarette sales, and a 38 % decline in the number of teen smokers.
2. No volume adjustment
The current settlement uses a volume adjustment to adjust the size of the annual penalties
paid by firms -- ultimately $25 billion per year before the volume adjustment. The
volume adjustment would reduce the size of the penalty because of the decline in sales --
roughly 22% over ten years -- that will occur under current trends and with the price
increases associated with the penalty payments.
Eliminating the volume adjustment would guarantee a higher stream of payments that
would not be eroded in the event that firms raise prices and the quantity of sales declines.
In fact, under the current agreement, firms may have the incentive to boost prices in the
effort to capture greater profits. This would occur because the penalty payments would
decline with volume but firms would only have to pay 25% of any excess profits.
While the existing structure of the settlement would raise $197 billion over 25 years, with
no volume adjustment, $252 billion would be raised.
3. Auction quantity licences
A final alternative would be to target overall tobacco use and establish quantity restrictions (with
reduced quantity over time) for tobacco sales. Such an approach could be implemented by
auctioning the rights to sell a given quantity of tobacco products (perhaps defined in terms of tar
and nicotine in the product).
This approach has the desirable feature that it would guarantee the decline in tobacco use
over time.
The auction approach would rely on the private market to solve the rationing problem that
accompanied the declining quantity.
Relations
belongs_to