The history of the cigarette tax

History of Tobacco Regulation

*This section is based in part on a paper prepared for the Commission by Jane Lang McGrew, an attorney from Washington, D.C.

Since 1613, when John Rolfe introduced a successful experiment in tobacco cultivation in Virginia (Morison, 1965 : 52) the leaf has assumed major social, industrial, economic and medical implications. Consequently, persons concerned with tobacco on a commercial or personal basis have been subject to a variety of different regulations over the past 360 years.

Cigarette taxes facts

Cigarette taxes facts

Tobacco has been attacked by social observers and medical authorities for the damage it has allegedly done, to the social and physical condition of man. Yet it has also provided a substantial source of revenue to the state and Federal governments of the United States.

As is now the case with alcohol, tobacco has long been subject to regulatory controls over the quantity and quality of production. On the other hand, sumptuary laws affecting tobacco have been far fewer-and weaker-than those aimed at alcohol. In fact, there has never been a time when tobacco was prohibited throughout the United States although consumption under certain circumstances has been forbidden at various times in different jurisdictions.

Tobacco-associated today with smoking of cigarettes, and to a lesser extent, of pipes and cigars-has been popular at times for both snuffing and chewing. Indeed, until about 1870 cigarettes were relatively rare in the United States, and almost all tobacco consumed domestically was chewed during the mid-19th century (Gottsegen, 1940: 9-10).

Tobacco taxes

Tobacco taxes

What ever the preferred mode of consumption, however, the, commodity has always been the subject of debate respecting the appropriate governmental attitude.

On the one hand, proponents of the leaf stress its social benefits and its economic and industrial significance. Some enthusiasts even endorse its alleged medical and psychological benefits. Opposed are those who cite the health hazards of smoking and others who are convinced of its immorality.

Most sumptuary restrictions were fostered by the latter group in an effort to suppress the habit.

Those who seek to institutionalize and foster use of the drug focus on the regulation of the quantity and quality of production.

This section does not attempt to weigh the merits of the various regulatory schemes. Rather, it will trace from John Rolfe’s day the three threads of regulation which have circumscribed both the producer and consumer of tobacco in the United States.

Cigarettes are one of the most heavily taxed consumer products in the United States.

Federal, state and local governments collect more money from the sale of cigarettes than retailers, wholesalers, farmers and manufacturers combined.

Cigarette taxes

Cigarette taxes

In FY2009, alone, between federal tax, state and local taxes, and tobacco settlement payments, the government raked in more than $38 BILLION:

  • $8.5 billion in federal excise taxes
  • $20.3 billion in state excise taxes
  • $8.8 billion is state settlement payments

Since FY1997, the weighted state average tax has gone up 197.5% — from 32.1¢ to 95.3¢ as of January 2008.

From 1997-2010, there have been 121 state excise tax increases as well as the District of Columbia.

Total state excise tax revenues have risen 115%, from $7.3 billion in FY1997, to $15.7 billion in FY2009.

Cigarette Retail and Taxes

As of March 2010, the average retail price of a package of 20 cigarettes (full-priced brands), was $5.27, up from 4.53 in 2007, including federal, state and municipal excise taxes.

Payments to the government, on average, for 55 percent of the retail price of cigarettes.

Around 64% of all tobacco sales occur in the nation’s 145,119 convenience stores, according to a National Association of Convenience Stores (NACS) study.

The average convenience store sells about $438,000 worth of cigarette each year. In addition, cigarette sales are the number one in-store item for these stores, comprising about 36% of merchandise sales.

After years of huge tax increases, enough is enough.

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