Cigarette taxes in the United States

Smokers as a percentage of the population for the United States as compared with the Netherlands, Norway, Japan, and Finland.

In the United States cigarettes are taxed at both the federal and state levels, in addition to any state and local sales taxes and local cigarette-specific taxes. Cigarette taxation has appeared throughout American history and is still a contested issue today.

History

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. Hamilton’s original proposal passed after major modifications, only to be repealed shortly thereafter with an insignificant effect on the federal budget.^[1] Even though Hamilton’s tax on tobacco failed, tobacco taxation continued to play an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 Union’s increasing debt during the American Civil War and the Federal government’s 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 After the war, many of these excise taxes were repealed but the tax on tobacco remained.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 Government’s main source of income came from these lingering tobacco taxes.^[2]

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.^[3] Other states quickly followed suit, and by 1950, 40 states and Washington D.C. enacted taxes on cigarette sales.^[4]

By 1969, all U.S. states, the District of Columbia and the territories had implemented cigarette taxes. Several cities such as Chicago and New York City have also implemented their own citywide cigarette taxes. The combined federal, state, county, and local tax on a pack of twenty cigarettes in the city of Chicago, in Cook County, Illinois, is $7.42, the highest in the entire country. The lowest rate in the nation is in Missouri, at 17 cents, where the state's electorate voted to keep it that way in 2002, 2006, and 2012.^[5][6]

Under the Obama Administration

On February 4, 2009, the Children's Health Insurance Program Reauthorization Act of 2009 was signed into law, which raised the federal tax rate for cigarettes on April 1, 2009 from $0.39 per pack to $1.01 per pack.^[7] The increase was to help cover the cost of increased coverage under the State Children’s Health Insurance Program (SCHIP).

One of the biggest criticisms of the bill came from Americans for Tax Reform which feared that it would lead to lower state tax revenue. ^[8] According to Nobel Prize–winning economist Gary Becker, who has studied the long-run price elasticity of cigarettes, the tax increase as a result of the Children’s Health Insurance Program Reauthorization Act increases the price of cigarettes 13.3% which ultimately means a 10.6% decrease in unit sales. The National Tax Foundation calculates these numbers to determine a predicted $1 billion loss for states. Another argument against this bill claims it to be regressive, holding that the tax increase unfairly targets the poor because according to the Centers for Disease Control and Prevention (CDC) more than half of all smokers are low income.^[9] The CDC also notes that, "However, because low-income groups are more responsive to price increases, increasing the real price of cigarettes can reduce cigarette consumption among low-income smokers by a greater percentage than among higher-income smokers, and thereby diminish socioeconomic smoking disparities.^[10] Further, lower-income communities also suffer from tobacco-related illnesses at a disproportionately higher rater than their higher-income counterparts.^[11]

In a study conducted on behalf of the New York State Department of Health, it revealed that low-income smokers (those in households making under $30,000), spent an average of 23.6% of their annual household income on cigarettes, compared to 2.2% for smokers in households making over $60,000.^[12]

Effects on smoking rates

One of the reasons for the support of increased cigarette taxes among public health officials is that many studies show that this leads to a decrease in smoking rates.^[13] The relationship between smoking rates and cigarette taxes follows the property of elasticity; the greater the amount of the tax increase, the fewer cigarettes that are bought and consumed.^[14] This is especially prevalent amongst teenagers. For every ten percent increase in the price of a pack of cigarettes, youth smoking rates overall drop about seven percent.^[15] This rate is also true amongst minorities and low income population smokers.^[16] The rates of calls to quitting hot-lines are directly related to cigarette tax hikes. When Wisconsin raised its state cigarette tax to $1.00 per pack, the hot-line received a record of 20,000 calls in a two-month time period versus its typical 9,000 calls annually.^[17]

An analysis of smoking and cigarette tax rates in 1955 through 1964, prior to the Surgeon General’s first report and general antismoking sentiment, shows the same relationship between tax increases and declining smoking rates that are prevalent today, suggesting that popular attitudes towards smoking are not a confounding factor.^[14] Tobacco taxes also produce significant improvements in public health, and arguments about alleged adverse economic effects of such taxes tend to be unsupported.^[18]

In 2012, RTI International conducted an analysis of data from the 2010-2011 New York and national Adult Tobacco Surveys to assess the financial burden cigarette taxes place on low-income families for the New York State Department of Health. According to ABC News, the study found that "higher cigarette taxes may be financially hurting low-income smokers rather than making them more likely to quit." Among the 13,000 surveyed in New York State, lower income smokers spent 23.6 percent of their income on cigarettes, compared to two percent by higher income New York residents and an average of 14 percent among lower-income smokers nationally.^[19][20]

Taxes as a proportion of cigarette prices

While the price of cigarettes has continuously increased since 1965, the percentage of that price going towards taxes is now half of what it was then.^[16] Phillip Morris currently lists total government revenue, including federal, state, local, and sales taxes, as 56.6% of the estimated retail price of a pack of cigarettes.^[21]

According to data from the WHO on cigarette taxes around the world, the US is ranked 36th out of the 50 most populous countries in terms of the percent of cigarette pack costs from taxes. Their data estimates that taxes make up 42.5% of the cost of a pack of cigarettes in the US, compared to 82.2% in the UK, which has the highest cigarette taxes. ^[22]

State cigarette tax rates

The following table lists American state and territory tax rates (as of April 1, 2017):^[23][24][25]

Taxes on the purchase of packs of cigarettes in each state
States are shaded on a continuous color scale where

  Less than $2 excise tax per pack

  $2 excise tax per pack

  $4 excise tax per pack

Excise tax per pack (in USD)	State or territory
0.675	Alabama
2.00	Alaska
2.00	Arizona
1.15	Arkansas
2.87	California
0.84	Colorado
3.90[26]	Connecticut
1.60	Delaware
1.339	Florida
0.37	Georgia
3.20	Hawaii
0.57	Idaho
1.98[27]	Illinois
0.995	Indiana
1.36	Iowa
1.29	Kansas
0.60	Kentucky
1.08[28]	Louisiana
2.00	Maine
2.00	Maryland
3.51	Massachusetts
2.00	Michigan
3.00[29]	Minnesota
0.68	Mississippi
0.17	Missouri
1.70	Montana
0.64	Nebraska
1.80	Nevada
1.68	New Hampshire
2.70	New Jersey
1.66	New Mexico
4.35[30]	New York
0.45	North Carolina
0.44	North Dakota
1.60[31]	Ohio
1.03	Oklahoma
1.31	Oregon
2.60[32]	Pennsylvania
3.75	Rhode Island
0.57	South Carolina
1.53	South Dakota
0.62	Tennessee
1.41	Texas
1.70	Utah
3.08	Vermont
0.30	Virginia
3.025	Washington
1.20[33]	West Virginia
2.52	Wisconsin
0.60	Wyoming
2.50	District of Columbia
1.75	Northern Marianas Islands
2.23	Puerto Rico
3.00	Guam
2.50	American Samoa
1.78	U.S. Virgin Islands

The above table does not include the federal excise tax on cigarettes of $1.01 per pack, cigarette taxes levied by individual municipalities (such as New York City, Chicago, and Anchorage), or sales taxes levied in addition to the retail price and excise taxes.

Non-cigarette tobacco taxes

Taxes on smokeless (chewing) tobacco, as well as (and often concurrent with) snuff, cigars and pipe tobacco, are also common in the United States. Forty-nine states and the District of Columbia have such a non-cigarette tax(es), Pennsylvania being the sole exception, having no smokeless or cigar tax at all (though it considers small cigars to be cigarettes for taxation purposes). Of the 49 states that do impose in this category, Florida does not tax cigars, though all other tobacco products are taxed. The U.S. federal government charges different non-cigarette excise taxes, according to the following 6 categories: snuff, chewing tobacco, pipe tobacco, roll-your-own, large cigars, and small cigars.^[34] Cigarette papers and tubes are also taxed. As of 2014, a small number of states in the U.S. had imposed regulations that allow e-cigarettes to be taxed as tobacco products.^[35]

See also

• Revenue Act of 1862
• Cigarette#Taxation
• Tobacco smoking#Taxation
• Stop Tobacco Smuggling in the Territories Act of 2013
• Excise tax in the United States

References

1. "History of Tobacco Regulation - Regulation for Revenue". Druglibrary.org. Retrieved 2015-07-02.
2. "Fact Sheets: Taxes: History of the U.S. Tax System". United States Department of the Treasury. Archived from the original on 27 November 2010.
3. "Iowa". Retrieved 12 June 2015.
4. Archived April 17, 2010, at the Wayback Machine.
5. "A burning issue," St. Louis Post-Dispatch, November 12, 2006
6. "Missouri keeps tobacco tax as the lowest in the nation : News". Stltoday.com. 2012-11-06. Retrieved 2015-07-02.
7. Section 701(b) reads: Section 5701(b) of such Code [Internal Revenue Code of 1986] is amended — (1) by striking ‘‘$19.50 per thousand ($17 per thousand on cigarettes removed during 2000 or 2001)’’ in paragraph (1) and inserting ‘‘$50.33 per thousand’’, and (2) by striking ‘‘$40.95 per thousand ($35.70 per thousand on cigarettes removed during 2000 or 2001)’’ in paragraph (2) and inserting ‘‘$105.69 per thousand’’. "United States Public Law No: 111-3 (123 United States Statutes at Large 106)" (PDF). 4 February 2009. Archived (PDF) from the original on 6 May 2009.
8. ""We Told You So:" Increased Tobacco Tax Rate Reduces Revenues in Arkansas - Americans for Tax Reform". Americans for Tax Reforms. Retrieved 12 June 2015.
9. Brad Schiller (1 April 2009). "Brad Schiller Says Barack Obama's Tobacco Tax Will Hurt the Poor - WSJ". WSJ. Retrieved 12 June 2015.
10. "Federal and State Cigarette Excise Taxes --- United States, 1995--2009". Retrieved 12 June 2015.
11. "Campaign for Tobacco-Free Kids". Retrieved 12 June 2015.
12. Jessica Stanton (22 September 2012). "State-funded study: Cigarette tax hurts New York's poor most". Daily Caller. Retrieved 2 October 2012.
13. "Tax, price and cigarette smoking: evidence from the tobacco documents and implications for tobacco company marketing strategies". Retrieved 12 June 2015.
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15. "President Obama Signs Children's Health Insurance And Federal Tobacco Tax Increase Into Law". Medicalnewstoday.com. Retrieved 2015-07-02.
16. "WHO: The Tobacco Atlas". Who.int. Archived from the original on 2011-12-03. Retrieved 2015-07-02.
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18. Chaloupka, F. J.; Yurekli, A.; Fong, G. T. (16 February 2012). "Tobacco taxes as a tobacco control strategy". Tobacco Control. 21 (2): 172–180. doi:10.1136/tobaccocontrol-2011-050417.
19. Salahi, Lara (September 20, 2012). "Cigarette Tax Burdens Low-Income, Doesn't Deter Smoking". ABC News. Retrieved July 19, 2013.
20. Farrelly, Matthew; James M. Nonnemaker; Kimberly A. Watson (September 20, 2012), "The Consequences of High Cigarette Excise Taxes for Low-Income Smokers", PLoS ONE, doi:10.1371/journal.pone.0043838, retrieved July 19, 2013
21. "Cigarette Excise Taxes – A National View". Philip Morris USA. Archived from the original on December 5, 2013. Retrieved February 17, 2015.
22. Kopf, Dan. "How Cigarettes Tax the Poor". Priceonomics. Retrieved 27 January 2016.
23. "State Cigarette Excise Tax Rates & Rankings" (PDF). Tobaccofreekids.org. Retrieved 2015-07-02.
24. "Georgia's budget mess could hurt local health care". The Daily Citizen. Retrieved 12 June 2015.
25. http://www.reuters.com/article/us-usa-election-tobacco-idUSKBN1340PT"Californiaapprovestaxincreaseoncigarettes". 
26. "Higher cigarette tax among new Connecticut laws kicking in".
27. "Illinois cigarette tax raised by $1 a pack". tribunedigital-chicagotribune. Retrieved 12 June 2015.
28. http://www.wdsu.com/news/local-news/new-orleans/louisiana-senate-passes-cigarette-tax-increase-goes-into-effect-april-1/38358404
29. http://www.revenue.state.mn.us/businesses/cigarette/Pages/What-s-New.aspx
30. "Want to Bring Down Smoking Rates? Follow the Lead of New York | Sheelah A. Feinberg". Huffingtonpost.com. 2012-05-25. Retrieved 2015-07-02.
31. http://www.tax.ohio.gov/excise/information_releases/index_excise/XT_2015_01.aspx
32. http://www.cspdailynews.com/category-news/tobacco/articles/which-tobacco-product-exempt-pennsylvania-s-new-tax
33. http://www.wsaz.com/content/news/Tobacco-tax-hike-goes-into-effect-385259661.html
34. "State Excise Tax Rates For Non-Cigarette Tobacco Products" (PDF). Tobaccofreekids.org. Retrieved 2015-07-02.
35. Crowley, Ryan A. (2015). "Electronic Nicotine Delivery Systems: Executive Summary of a Policy Position Paper From the American College of Physicians". Annals of Internal Medicine. 162 (8): 583. doi:10.7326/M14-2481. ISSN 0003-4819. PMID 25894027.