Tax Bites - Cigarettes

86.71%*

It’s no secret that cigarettes are the consumer products that federal, state and local governments love to hate.  How much do they rely on these legal goods?  86.71 percent of what consumers pay for a pack of cigarettes ends up going to the government in taxes and other payments.

Based on the most recent available data, the average (weighted) retail price for a pack of cigarettes in the U.S. is about $4.97.  By far, government receives the largest paycheck from each pack of cigarettes with 44.6 percent of the price, or $ 2.22 collected for special federal, state and local excise taxes imposed on cigarettes.    

Also, as a result of the Master Settlement Agreement (MSA), approximately 50 cents of the average retail price is paid to states and their lawyers.  While this portion of the government’s “bite” is meant to offset states’ claims about higher costs imposed by smokers, few states spend the revenue on smoking related programs.  

On top of the $2.22 in direct excise taxes, and $.50 per pack in MSA costs, there are the taxes paid by the manufacturers, wholesalers, the retailers, the warehouses, and the taxes embodied in the products the manufacturer uses to make the cigarettes. All told, these hidden taxes consume another $1.59 of the cost the consumer pays for each cigarette pack.

Altogether about $4.31 of the $4.97 the consumer pays for the pack of cigarettes is collected by the government in taxes and other payments.

*note that the cigarette tax bite has been re-calculated to reflect the significant increase in the federal excise tax on tobacco which took effect on April 1, 2009.

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