Cigarette excise taxes have been a declining share of both Federal

and state excise tax revenues during the postwar period, despite numerous increases in state excise tax rates. Table 1 shows that Federal receipts from cigarette taxation increased in absolute terms from $1.2 billion in fiscal year 1950 to $2.5 billion in 1982, but declined as a share of total revenue from 3.2 percent to 0.4 percent and as a share of GNP from 0.5 percent to less than 0.1 percent. As a result of the tax increase in TEFRA, Federal receipts from cigarette excise taxes nearly doubled to $4.7 billion in fiscal year 1984, about 0.7 percent of Federal revenues and slightly over 0.1 percent of GNP. Federal cigarette excise tax receipts as a share of total revenue and GNP remain below levels in every year between 1950 and 1975.

Table 2 shows that state cigarette excise tax receipts have grown at a much faster rate than Federal receipts over the same period, but have also declined (though only slightly) relative to GNP. State excise tax receipts increased from $0.4 billion in fiscal year 1950 to $4.2 billion in fiscal year 1984. The last two columns of Table 2 show that state cigarette excise taxes increased faster than GNP throughout the late 1950s and 1960s, but declined as a share of GNP after 1972 and as a share of total state revenues

after 1966.

SOURCE: The

Tobacco Institute, The Tax Burden on Tobacco-Historical Compilation, vol. 19, 1984, p. 5; Economic Report of the President, Washington, D.C., 1985, pp. 242 and 318.

SOURCE: The Tobacco Institute, The Tax Burden on Tobacco

Compilation, vol. 19, 1984, p.8; Economic Report of the President,
Washington, D.C., 1985, P. 242; Advisory Commission on
Intergovernmental Relations, Significant Features of Fiscal Federalism,
1982-83 Edition, Washington, D.C., January 1984, p. 32.

Tables 3-5 show how state and Federal cigarette excise taxes have changed in nominal terms, in real terms, and as a percentage of cigarette prices over the same period. Because the Federal government and almost all states impose specific rather than ad valorem taxes, inflation reduces cigarette taxes in real terms and as a percentage of the price of cigarettes in years when the excise tax rate is unchanged. Table 3 shows that the Federal cigarette excise tax rate was increased only twice during the postwar period from 7 cents per pack in 1950 to 8 cents in 1951, and from 8 cents to 16 cents in TEFRA in 1982. This translates into a decline in the

tax rate measured in 1984 dollars4 from 37.5 cents per pack in 1946 to 8.6 cents in 1982, followed by an increase to 16 cents in 1984. The Federal tax as a percentage of the cigarette price (including taxes) declined from 42.2 percent to 10.7 percent between 1947 and 1982 and now stands at 16.6 percent, about the same rate as in 1975.

In contrast, Table 4 shows that real state tax rates and state taxes as a percentage of the price of cigarettes are higher today than they were in the 1950s. On average, state tax rates increased from 12.2 percent of cigarette prices in 1954 to 26.9 percent in 1975, but have subsequently declined to 15.1 percent in 1984. Table 5 shows that combined state and Federal cigarette excise taxes declined from 49.9 percent of cigarette prices in 1954 to 27.8 percent in 1982, and have since (as of 1984) risen to

SOURCES: The Tobacco Institute, The Tax Burden on Tobacco Historical Compilation, vol. 19, 1984, p. 6; U.S. Department of Agriculture (cigarette price data supplied by Robert Miller); Economic Report of the President, Washington, D.C. 1985, p. 291.