Let's say a competitor shows up who manufactures cigarettes at $1. At a lower tax rate of $1 his cigarette is $3 vs $5. But at a higher tax rate of $3, it is

Let's say a competitor shows up who manufactures cigarettes at $1. At a lower tax rate of $1 his cigarette is $3 vs $5. But at a higher tax rate of $3, it is a $5 vs $7 customer price. In absolute terms the price difference is the same. However, consumers think in terms of percentages for cheaper items.