Tax Revenue Pressure

I found this example of a fixes that fail structure as part of an evening news story a few years ago.

The Canadian Government was facing a tax gap due to the difference between their desired tax revenue and their current tax revenue. Their solution to this situation was to increase cigarette tax with the intent of increasing current tax revenue. As it turned out current tax revenue actually declined.

It seems the increase in cigarette tax was enough so Canadian cigarettes were more expensive than American cigarettes. This fostered the development of a smuggling industry between the US and Canada. This reduced the sale of taxed cigarettes thus reducing the current tax revenue. When asked why they didn't police the smugglers the border police commented that they were carrying hand guns while the smugglers were carrying machine guns.

When the situation was understood and the cigarette tax reduced so Canadian cigarettes cost less than American cigarettes the smuggling industry died of its own accord within 5 days.

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