Economics commentary -Kisna Agarwal

Title of the article: Baltimore Council President Scott

proposes e-cigarette tax to help city deal with revenue losses 

Source of the article: :

https://www.baltimoresun.com/politics/bs-md-pol-e-cigarette-
taxes-20201019-l7zvrgqxprhgfk3hu4jmrqhbfi-story.html

Date the article was published: 19, 2020

Date the commentary was written: 5th feb 2022

Unit of the syllabus to which the article relates:

Microeconomics
 
  
 
 

Baltimore Council President Scott

proposes e-cigarette tax to help city
deal with revenue losses
 
Baltimore City Council President Brandon Scott is proposing a tax on electronic

cigarettes as a way to discourage smoking and boost revenue as the coronavirus

pandemic continues to devastate the city’s economy.

 He introduced a bill Monday night to establish a 30% excise tax on the distribution

of electronic smoking devices, including e-cigarettes, e-hookahs and vape pens.

 “We have to be sure we are treating these kinds of devices like we treat regular

cigarettes,” said Scott, who is the Democratic nominee for mayor.

 Scott said it’s essential to look for new revenue streams. The pandemic has

hammered Baltimore’s economy, forcing the city to withdraw up to $25 million from

its Rainy Day Fund. 

 Baltimore County to join other Maryland counties suing e-cigarette maker »

The finance department will perform an analysis to determine how much the tax

could bring in.The council’s taxation and finance committee, chaired by

Councilwoman Sharon Green Middleton, will consider the bill.

 Montgomery County became one of the first jurisdictions in the nation to impose

such a tax in 2015. State legislators also are considering taking steps to tax e-

cigarettes and other smoking devices.

 Democratic City Councilman Leon Pinkett, who served on a state task force devoted
to curbing electronic smoking, said he’s encouraged the city could have another tool
to discourage such devices.
 

“The most important thing for me, from day one, has been keeping vaping products

out of the hands of young people,” he said.

 Scott said it’s important to build on previous work to regulate these devices.

 “If we can’t ban them,” he said, “we can tax them.”

 The idea was sharply criticized by the leader of the American Vaping Association,

which advocates vaping products help smokers quit.

 “There is no justification for a new excise tax on a product that is helping smokers

across Baltimore and the rest of Maryland get off of deadly, combustible cigarettes,”

said the group’s president, Gregory Conley.

 
 
 
 
 
Commentary
 
The preceding article discusses the indirect taxation of cigarettes and hookahs. Cigarettes

are deterrent commodities because the government seeks to reduce cigarette consumption,

which has a negative influence on society. It is more beneficial to the individual than to

society, resulting in a negative consumption

externality.

We can see that MPC equals MSC because it is a negative consumption externality and the

supply remains constant. When a consumer utilises products like these, an element of
addiction is left behind. And the consumer is increasingly attempting to use the blemished

good. MPC, also known as MSC, is the EQUILIBRIUM point in the figure where MPB

intersects the curve. However, as the addiction becomes more serious, customers develop a

habit of abusing the deterrent good. Because commodities like cigarettes and hookahs emit

toxic and chemically enhanced smokes, it becomes directly dangerous to him and indirectly

damaging to the environment. Especially in today's world, when lung cancer and other

hazardous diseases impact a large number of senior persons. As a result, the MSB curve

forms to the left of the MPB curve. The OPTIMUM EQUILIBRIUM is formed when the MSB

curve intersects the supply curve at a location to the left of the original equilibrium. There is

an over-allocation of resources, resulting in a loss of welfare in the economy, because the

optimum equilibrium is to the left of the original equilibrium.

 Because the economy has already been impacted by the pandemic, the government has

taken severe measures to discourage the use of cigarettes and hookahs.

Baltimore City Council President Brandon Scott devised a plan to introduce intervention as a

30 percent INDIRECT TAX. The MPC curve shifts left once the tax is introduced because the

producers will now provide less supply of the good. Implied tax benefits the country in a

variety of ways. To begin with, as the curve moves to the left, the problem of over-allocation

decreases, resulting in less welfare loss. The supply reduces to OPTIMUM QUANTITY when

the MPC curve shifts left, resulting in the correction of negative consumption externality. 

Second, we can see in the report that the country has suffered greatly as a result of

pandemics and has depleted its key resources for its population. However, now that the tax

has been enacted, the government is attempting to recoup its losses. We've learned that

commodities like cigarettes and hookahs have elastic demand, which indicates that a large

rise in price will lead to a decrease in the quantity demanded. 

In conclusion, enacting the 30% TAX on cigarettes and hookahs benefited the country by
allowing it to recover from the pandemic, addressing negative consumption externalities,
and reducing welfare loss.