Why Cigarettes Are so Expensive in New York
Smokers in the USA will certainly tell about the enormous price inconsistencies for cigarettes state to state.
The key cause for high cigarette prices is the varying excise taxes (SET) that each state sets on a pack of cigarettes.
Citi’s Tobacco team directed by Vivien Azer expects SETs to only turn into an growing trouble for the cigarette makers.
The big tobacco companies assume much more challenging SET conditions in 2013, comparable to those observed in 2011 and 2012. On a weighted-average basis, Reynolds American expects the SET level to boost $0.10 pp, or +7% relative to the $1.40 pp SET average noticed in 2012.
In fact, year-to-date there have been laws for cigarette excise tax increases recommended in 23 states (though several have been unsuccessful, remarkably in Nebraska, North Dakota and Wyoming), and decreases suggested in three states. Surprisingly, there have been suggestions in each of the three biggest states by consumption (Texas, California and Florida), as well as several proposals as part of budgetary bills (i.e., in Massachusetts, Minnesota and New Hampshire).
Assuming no modifications to the volume contributions by state, it is considered that the best-case scenario for 2012 to be an approximately 1% drop (-$0.02 pp) in the weighted-average cigarette SET rate, and a 36% boost (+$0.52 pp) in the worst-case scenario. Additionally, U.S. President Obama has planned to raise the federal excise tax on cigarettes by 94.6 cents per pack on January 1, 2014 (+94% from the current rate of $1.01) and to index the tax rate to inflation beyond 2014. It remains to be seen whether this proposition will be accepted by U.S. Congress, though early indications suggest Republicans are opposed.
Here’s a map of the state excise tax rates. New Yorkers who often pay over $10 per cigarette pack won’t be shocked by the high tax rate in its state. Meantime, the cheapest cigarettes are sold in Missouri.
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