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State Cigarette Excise Tax

Establishing a basis to grade state cigarette excise taxes begged a question: “What is the appropriate level to tax cigarettes to protect public health?” Research shows that as the price of cigarettes increases, consumption decreases. For each 10 percent price increase, consumption drops by about 7 percent for youth and 4 percent for adults.[1] The CDC reported that each pack of cigarettes sold in this country costs the economy $10.47 in direct medical costs and lost productivity.[2] So the answer for the cigarette excise tax is simple: The higher the better.

The cigarette tax grades are based on the average (mean) of all state taxes as the midpoint, or the lowest C. The average cigarette tax was chosen because it is often seen as an indication of where states are in their cigarette taxing policies. The average state excise tax on January 1, 2014 was $1.53 per pack. The range of state excise taxes ($0.17 to $4.35 per pack) is divided into quintiles.

The excise tax grades break down as follows:

Grade

Tax

A

$3.06 and up

B

$2.296 to $3.059

C

$1.53 to $2.295

D

$0.765 to $1.429

F

Under $0.765

This methodology reflects the dynamic nature of cigarette excise taxes and the need to continue increasing taxes to keep up with inflation and decrease consumption. For instance, in 2004 New Jersey had the highest cigarette tax at $2.05 per pack, a value that would put them towards the middle of state cigarette tax rates in 2014. As cigarette taxes rise in the future, the average will change and the grades will be adjusted to reflect the new average.

  1. There is general consensus among tobacco researchers that every 10 percent increase in the price of cigarettes decreases cigarette consumption by about 4 percent in adults and about 7 percent in children.  Tauras J, et al. Effects of Price and Access Laws on Teenage Smoking Initiation: A National Longitudinal Analysis, Bridging the Gap Research, ImpacTeen. April 24, 2001.
  2. Centers for Disease Control and Prevention. Sustaining State Programs for Tobacco Control: Data Highlights 2006. Available at: http://www.cdc.gov/tobacco/data_statistics/state_data/data_highlights/2006/index.htm.

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