Law of Unintended Consequences
Cigarette companies recently began exhibiting a textbook example of the adverse secondary effects of tax hikes. In light of the federal tax increase set to take place in two weeks, tobacco manufacturers Philip Morris and RJ Reynolds quietly raised their prices to just about what price they would be once the federal tax actually takes effect. The article indicates that some unnamed analysts have speculated that “the companies raised prices early to get people used to the new tax and to compensate for an expected drop in sales.”
It is unclear whether this price increase is a temporary measure that the companies intend to drop on April 1, when the government begins its new tax collection and would otherwise drive effective prices still higher — then lament about what it was like, for a short time, to earn like the U.S. government.
