Alabama's Cigarette Tax Article. The basic economic problem in this article is negative externalities. An externality occurs when there is a divergence between social and private costs and benefits.

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Carina Körner                 IB Economics Internal Assessment

Cigarette Tax

Posted by admin on January 6, 2012

Two Democratic lawmakers filed a proposal to raise state Alabama’s cigarette taxes, one of 32.5 cents per pack and other for $ 1 per pack, trying to fill what may be $ 400 million deficit in the state General Fund next fiscal year, according to News Birmingham.
State Representative Patricia Todd filed a bill that would raise the state tax from 42.5 cents cigarettes to 75 cents per pack, which will raise about 75 million dollars a year for the General Fund.

Todd cigarette tax increases every year since 2008, and each plan is dead, the report said. But some senior Republicans – the party is dominated by the state legislature – said they doubted the legislature to raise taxes on cigarettes in 2012 regular session.

But Todd said she thinks there is a 60 percent chance that the gloomy forecast of the budget for fiscal 2013 that begins Oct. 1, will motivate lawmakers to pass its proposed tax hike cigarette to alleviate what could be a sharp reduction in public services.
“I think we will have a better chance this year because of the budget being so bad,” said Todd newspapers. “I think we cut all that we can cut.”

State Representative Joe Hubbard filed a bill to raise the state tax cigarettes $ 1 for a pack, which will raise approximately $ 230 million estimated in the year, the report said, referring to the Legislative Finance Office. All funds raised will go to the Hubbard bill Medicaid in a state agency, which relies on the general fund and provides medical care for the poor and disabled.
Hubbard said the tax increase on cigarettes would be a fair way to support Medicaid, as part of its spending goes to fight health problems caused by smoking. “It’s not an unfair tax. This tax on people who are engaged in activities that are worth every taxpayer,” he said.

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“My goal here is not to raise taxes. My goal is to make sure that we provide the necessary services, and that if we are to increase revenue, we do it in such a way that the revenue raised, and raised quite a responsibility,” Hubbard said. “I think this is a proposal that does it.”

David Sutton, a representative cigarette manufacturer in Richmond, Va.-based Philip Morris USA, said that it would not be fair to fill the shortfall of income tax a minority of taxpayers. “You’re talking about raising taxes on one segment of the population, to provide financing for ...

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