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Quick Hits: Thank You For Smoking

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Brief scrutiny of today's headlines.

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In an effort to spare lungs and raise money to support anti-smoking campaigns, New York state officials are preparing to introduce a cigarette tax hike of $1.25.

According to Pressconnects.com, this brings total taxes on cigarettes in New York State to $2.75 (or $4.00 in New York City) -- the highest in the nation -- and raises the price of smokes more than 20% to $6 or more per pack.

Raising prices to curtail smoking has a track record. According to a study by the American Cancer Society, a 10% increase in the price of cigarettes was followed by a 6.5% decrease in underage smoking and a 2% drop in the habit among adults.

Beyond being a disincentive to a foul habit, price hikes lead to increased revenues for the state. The results of a 2006 Tax Burden on Tobacco study revealed a $1 increase on cigarettes sold in Montana generated $25.1 million in tax revenue - in spite of a decline in sales of 17.8%. New York state lawmakers expect to raise $265 million in additional revenue for anti-smoking and health programs.

Still, some die-hard smokers will dodge the price increases, opting to stock up in nearby Pennsylvania, where a pack of cigarettes costs less than $4.50, including state taxes of $1.35.

While some are willing to pay top dollar their vice, others already affected by high gas and food prices are considering quitting or cutting back. According to Morningstar, Reynolds American (RAI), Loews Carolina Group (CG) and Altria (MO) have to "balance the retail price of [their tobacco products] with the economic trends affecting many of their core customers," a task made more difficult in the face of higher cigarette taxes.

What's good news for health is bad news for Big Tobacco.

For more on cigarettes, check out Hoofy & Boo's always astute report.


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