My Thoughts on the New Tobacco Tax

The Obama administration, in their infinite wisdom, decided to help out the poor by providing additional funds for health care through a massive tax increase on tobacco products. While helping improve health care for the poor is an admirable goal, I think it is doomed to fail.

Until 5 weeks ago, I was a cigarette smoker. I never really smoked more than a pack a day, so I guess I was never really a heavy smoker. At any rate, the increase in price on cigarettes, due to the new tobacco tax, was just the incentive I needed to quit smoking. I went on the patch and have had a pretty easy time of it. A friend on mine, who chain smoked for years, decided to try Chantix and has also stopped smoking. Not only that, but I've noticed when I go to the store to buy nicotine patches, there have been several times that they were sold out. So I'm sure a lot of other people have decided to quit smoking. You might say, good for us! It is a good thing to quit smoking. I've always known it, I just didn't want to quit. But now, like millions of fellow Americans I'm sure, I can no longer justify the expense.

So, I've concluded that the government has probably made a serious mistake in passing this new tax. While their intentions were good, their thinking was flawed. When the market can no longer bear the price, demand drops and therefor tax revenue from tobacco products decrease. So not only do they fail to raise money to finance health care for the poor, but they will also lose the tremendous tax revenues that they were already taking in from smokers. This program will no doubt cause a tremendous decrease in the sale of tobacco products in the U.S., which will cause those companies to cut back on employees and reduce business operations, leading to even further losses in tax revenues. Add to this, all of the people who will live longer by not smoking, thereby increasing their exposure to age related illnesses when they are likely to be on Medicare and Medicaid and not only will the government fail to help the poor, they will be exposing taxpayers to even more costs related to care of the elderly.

I have been a long term investor in Altria Group (MO), but have decided it's time to sell and re-invest the money in something with a more promising future. Perhaps Phillip Morris International. Don't get me wrong, I think smoking is a bad habit, but there are a lot worse things. At any rate, I think the tobacco industry is on the way out in the U.S., having been taxed and sued out of business.