Historically, efforts to abolish smoking and drinking ended in large part because they prevented governments from taxing those activities and imposed additional costs in the form of law enforcement and incarceration.
The classic example, of course, is Prohibition. It could come into existence in the first place only because the income tax had given the federal government a way to replace revenue from the alcohol tax. The vast increase in income taxes during World War I significantly reduced alcohol taxes as a share of federal revenues -- by 1918 they were down to just 12 percent of federal receipts.
Needless to say, Prohibition caused alcohol tax revenues to collapse, although they never completely disappeared because of some permissible alcohol production. The onset of the Great Depression, however, led to a sharp decline in all federal revenues. The potential revenue gain to the government became a key argument for those in favor of repealing Prohibition.5 Thus, revenue considerations were crucial both to the rise of Prohibition and to its abolition in 1933.[6]
A parallel story is told about cigarettes.
During the 1890s and the early part of the 20th century, there was a powerful national campaign to abolish smoking that was no less intense than the drive for Prohibition.[7] A key reason the campaign ultimately fizzled out in the 1920s was the government's need for tobacco tax revenues, especially after alcohol tax revenues dried up. The Republicans' cuts in income taxes in the 1920s also increased the federal government's dependence on tobacco tax revenues, which rose from 4 percent of federal receipts in 1920 to 11.2 percent in 1929. The onset of the Great Depression, the concomitant fall in income tax revenues, and the inelasticity of demand for cigarettes caused tobacco revenues to rise to 20.7 percent of all federal receipts by 1932.
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