Taxation

Cigarettes are a significant source of tax revenue in many localities. This fact has historically been an impediment for health groups seeking to discourage cigarette smoking, since governments seek to maximize tax revenues. Furthermore, some countries have made cigarettes a state monopoly, which has the same effect on the attitude of government officials outside the health field.[41] In the United States, cigarettes are taxed substantially, but the states are a primary determinant of the total tax rate. Generally, states that rely on tobacco as a significant farm product tend to tax cigarettes at a low rate.[42] It has been shown that higher prices for cigarettes discourage smoking. Every 10 percent increase in the price of cigarettes reduced youth smoking by about seven percent and overall cigarette consumption by about four percent.[43] Thus increased cigarette taxes are proposed as a means to reduce smoking. Coupled with the federal cigarette tax of $1.01 per pack, total cigarette-specific taxes range from $1.18 per pack in Missouri to $6.86 per pack in New York City. States also charge sizable settlement payments to tobacco companies, and the federal government levies user fees to fund FDA regulatory measures over tobacco. While these charges are not cigarette-specific, tobacco companies are ultimately forced to pass on those costs to their consumers. Lastly, most jurisdictions apply sales tax to the full retail price of cigarettes. Cigarettes are a significant source of tax revenue in many localities. This fact has historically been an impediment for health groups seeking to discourage cigarette smoking, since governments seek to maximize tax revenues. Furthermore, some countries have made cigarettes a state monopoly, which has the same effect on the attitude of government officials outside the health field.[41] In the United States, cigarettes are taxed substantially, but the states are a primary determinant of the total tax rate. Generally, states that rely on tobacco as a significant farm product tend to tax cigarettes at a low rate.[42] It has been shown that higher prices for cigarettes discourage smoking. Eve y 10 percent increase in the price of cigarettes reduced youth smoking by about seven percent and overall cigarette consumption by about four percent.[43] Thus increased cigarette taxes are proposed as a means to reduce smoking. Coupled with the federal cigarette tax of $1.01 per pack, total cigarette-specific taxes range from $1.18 per pack in Missouri to $6.86 per pack in New York City. States also charge sizable settlement payments to tobacco companies, and the federal government levies user fees to fund FDA regulatory measures over tobacco. While these charges are not cigarette-specific, tobacco companies are ultimately forced to pass on those costs to their consumers. Lastly, most jurisdictions apply sales tax to the full retail price of cigarettes. Although cigarettes were not popular in the United States until the mid-19th century, the federal government still attempted to implement a tax on tobacco products such as snuff early on in its history. In 1794, secretary of the treasury Alexander Hamilton introduced the first ever federal excise tax on tobacco products. Hamiltonís original proposal passed after major modifications, only to be repealed shortly thereafter with an insignificant effect on the federal budget. Even though Hamiltonís tax on tobacco failed, tobacco taxation continued to play an important role in American history. On July 1, 1862, the United States Congress passed excise taxes on many items including tobacco. This occurred as a result of the Unionís increasing debt during the American Civil War and the Federal governmentís need for additional revenue. After the war, many of these excise taxes were repealed but the tax on tobacco remained. In fact, by 1868 the Governmentís main source of income came from these lingering tobacco taxes. Despite the excise tax of the Federal government, states did not ratify a tobacco excise tax until well into the 20th century. In 1921, Iowa became the first state to pass a tobacco excise tax at the state level in addition to the federal tax. Other states quickly followed suit, and by 1950, 40 states and Washington D.C. enacted taxes on cigarette sales.