Order Code RS20343
Updated January 10, 2002
CRS Report for Congress
Received through the CRS Web
Federal Excise Taxes on Tobacco Products:
Rates and Revenues
Louis Alan Talley
Specialist in Taxation
Government and Finance Division
Summary
This report examines increases in excise tax rates on tobacco products contained
in the Balanced Budget Act of 1997 (P.L. 105-33). Under that Act, the increased rates
on tobacco products became effective in two stages. The first scheduled increase in rates
occurred on January 1, 2000, while the second increase in rates occurred two years later
on January 1, 2002.
The increased rates apply to all tobacco products. In addition, the Act included a
new excise tax on roll-your-own tobacco which became effective January 1, 2000. Also
included in the Act were expanded compliance measures designed to ensure collections
of tobacco excise tax monies. As a result of payments made by tobacco companies under
the Master Settlement Agreement and the resulting increase in the cost of tobacco
products, tobacco consumption declined. Thus, projected federal tobacco revenues have
declined somewhat when compared to prior revenue estimates made at the time of the
Balanced Budget Act’s passage. This report will be updated as legislative developments
warrant.
Tax Rates
The federal tax rate on cigarettes remained unchanged at 8 cents per pack from 1951
to 1982.1 Since 1982 the rate has been increased by three federal tax acts. The rate was
increased to 16 cents per pack as part of the Tax Equity and Fiscal Responsibility Act of
1982 (P.L. 97-248). In the General Explanation of the Revenue Provisions of the Tax
Equity and Fiscal Responsibility Act of 1982, the Joint Committee on Taxation indicated
that the reason for this increase was that inflation had caused the effective level of the tax
to decline by more than 70% in constant dollars because the tax was imposed as a set
1 For a more detailed legislative history see CRS Report 94-474, Federal Excise Taxes on Tobacco
Products: A Summary of Present Law and a Legislative History, by Thomas B. Ripy and Mildred
C. Washington.
Congressional Research Service ˜ The Library of Congress

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amount, rather than as a percentage of sales price. The doubling of the tax rate did not
increase the per-pack tax, in real terms, above the 1951 level. Also, Congress felt that the
broad-based increase in revenue required by the fiscal outlook through 1985 mandated an
increase in the cigarette excise taxes.
Next, the rates were increased in two stages under the Revenue Reconciliation Act
of 1990 (P.L. 101-508). One half of the increase (4 cents per pack) took effect on January
1, 1991 with the second half (an additional 4 cents) in effect as of January 1, 1993. Thus,
the Revenue Reconciliation Act of 1990 raised the rates from 16 cents per pack to 24
cents per pack. The rates were increased because of large continuing federal budget
deficits and the need for additional federal revenues.
The most recent increase in federal excise tax rates on tobacco products occurred in
the Balanced Budget Act of 1997 (P.L. 105-33). Like the increases provided under the
Revenue Reconciliation Act of 1990, the tax rates on all tobacco products increased in two
stages. The rates first increased on January 1, 2000. The final increase in rates occurred
on January 1, 2002. In the case of cigarettes, the first stage increased rates by 10 cents a
pack to 34 cents. In the second stage, the rates increased an additional 5 cents a pack to
make the federal excise tax 39 cents per pack. In addition, the Act established a tax rate
for roll-your-own tobacco which is now in effect. Table 1 provides details on the rate
increases imposed on all tobacco products for the period 1990 to 2002.2
Revenues
The actual revenue yield from federal tobacco excise taxes remained relatively stable
during the 1990s. After the statutory rate increase in 1993 the revenue yield jumped from
just over $5 billion in fiscal year 1992 to $5.875 billion in fiscal year 1993. Fiscal year
revenues over the 1993 to 1996 time period have ranged from a low of $5.691 billion to
a high of $5.878 billion. The Joint Committee on Taxation estimated that the Balanced
Budget Act of 1997 increase in tobacco tax rates would increase revenues beginning in
fiscal year 2000 (the increased rate is effective for a nine month period during that fiscal
year). At the time of the Balanced Budget Act of 1997's enactment, the Joint Tax
Committee estimated that additional revenues of $1.175 billion would be collected in fiscal
year 2000 due to the first part of the rate increase. Further, the committee estimated that
the increased rates would result in more than $2 billion in additional annual revenue by
fiscal year 2002. As indicated earlier, these projections were made prior to the tobacco
Master Settlement Agreement. A detailed breakdown of actual and estimated tobacco tax
receipts is provided in Table 2, which appears on the final page of this report.
2 As originally enacted, increased revenue collections were to be credited against the total payments
to be made under the tobacco industry settlement agreement. However, this provision was repealed
under section 519 of the Fiscal Year 1998 Appropriations for Labor, Health and Human Resources
(P.L. 105-78).

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Table 1. Comparison of Tobacco Excise Tax Rates
Statutory
Statutory
Statutory
Statutory
Statutory
Commodity
Rate—
Rate—
Rate—
Rate—
Rate—
1990
1991
1993
2000-01
2002
Cigarettes,
$8.00
$10.00
$12.00
$17.00 (34
$19.50
small (Class
(16 cents per
(20 cents
(24 cents
cents per
(39 cents
A) Rates are
pack)
per pack)
per pack)
pack)
per pack)
per thousand
Cigarettes,
$16.80
$21.00
$25.20
$35.70
$40.95
large (Class B)
Rates are per
thousand
Large cigars,
8.5% of
10.625% of
12.75% of
18.063% of
20.719% of
wholesale
wholesale
wholesale
wholesale
wholesale
wholesale
price not more
price (but not
price (but
price (but
price (but
price (but
than $235.294
more than
not more
not more
not more
not more
per thousand
$20 per
than $25 per
than $30
than $42.50
than $48.75
thousand)
thousand)
per
per
per
thousand)
thousand)
thousand)
Small cigars
75 cents
93.75 cents
$1.125
$1.594
$1.828
(per thousand)
Cigarette
Papers
0.500 cent
0.625 cent
0.750 cent
1.06 cents
1.22 cents
(per 50)
Cigarette tubes 1.0 cent
1.25 cents
1.5 cents
2.13 cents
2.44 cents
(per 50)
Snuff
24 cents
30 cents
36 cents
51 cents
58.5 cents
(per pound)
Chewing
8 cents
10 cents
12 cents
17 cents
19.5 cents
Tobacco
(per pound)
Pipe Tobacco
45 cents
56.25 cents
67.5 cents
95.67
$1.0969
(per pound)
cents
“Roll Your
95.67 cents
$1.0969 per
Own Tobacco”
per pound
pound

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When the Joint Tax Committee estimated the projected increase in tobacco tax
revenues, the Master Settlement Agreement between the states, the District of Columbia,
U.S. territories, and the tobacco industry had not been signed. As a result of the Master
Settlement Agreement, tobacco companies have raised prices a number of times so as to
raise revenues with which to make the annual payments totaling $204.5 billion through
2025. In apparent response to the increase in price, projected tobacco consumption has
declined.3 Thus, the Joint Tax Committee's revenue estimates for tobacco receipts would
be lower if made under current conditions. More recent projected federal tobacco tax
estimates, prepared by the Treasury Department, are shown in the final column of Table
2, which appears on the final page of this report.
In addition to the excise taxes on various tobacco products, there is also an
occupational tax. A manufacturer or exporter of taxable tobacco products with gross
receipts of less than half a million dollars in the preceding taxable year must pay a tax of
$500 a year. For those whose gross receipts exceed that amount, the tax is $1,000 a year
per business premise. While the special occupational taxes brought in approximately
$102.8 million in fiscal year 2000, the tax applies to alcohol and firearms as well as
tobacco, and it is believed that tobacco accounts for only a small part of the revenue.
Occupational taxes collected from those dealing in alcohol and firearms make up the bulk
of collection revenues. No breakdown of the special occupational taxes is available.
Tobacco excise taxes are paid into the General Fund of the U.S. Treasury. There
continues to be no direct relationship between federal tobacco excise tax collections and
any particular federal program. In those cases where other excise taxes are directly linked
with spending programs (as through trust funds), there is usually a relationship between
the taxed products and a program financed by the funding (such as the gasoline and diesel
fuel excise taxes and the Highway Trust Fund). In some cases, excise taxes may be
imposed in situations where those actually responsible for damages cannot be held directly
accountable (such as the .01 cent excise tax on gasoline used for cleaning up underground
leaking storage tanks). In those cases, taxes are levied on current production of a product
associated with causing the damages that the government program is trying to rectify.
3 For a discussion of the Master Settlement Agreement effects on price, workers, suppliers,
consumption, and income distribution see CRS Report 97-995, The Proposed Tobacco Settlement:
Effects on Prices, Smoking Behavior, and Income Distribution, by Jane G. Gravelle.

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Table 2. Tobacco Excise Tax Estimates and Actual Revenue
Receipts
(Revenue Amounts in Billions)
Tobacco Excise Tax
Tobacco Excise Tax
Joint Tax Committee
Revenues (Actual
Revenues (Estimates
Estimated Increase in
Fiscal Year
for FY2000 and
Made Under Prior
Tobacco Excise Tax
Estimates Under
Tax Law) a
Receipts b
Current Tax Law) c
1992 (actual)
$5.049
1993 (actual)
$5.875
1994 (actual)
$5.691
1995 (actual)
$5.878
1996 (actual)
$5.795
1997 (estimate)
$5.694
1998 (estimate)
$5.661
1999 (estimate)
$5.626
2000 (estimate)
$5.594
$1.175
$7.221
2001 (estimate)
$5.563
$1.720
$7.548
2002 (estimate)
$5.535
$2.272
$8.140
2003 (estimate)
$2.280
$8.175
2004 (estimate)
$2.290
$7.941
2005 (estimate)
$2.300
$7.778
2006 (estimate)
$2.310
$7.643
2007 (estimate)
$2.320
a. U.S. Office of Management and Budget. Budget of the United States Government, Historical Tables,
Fiscal Year 1998. February 1997. p. 39.
b. U.S. Congress. Joint Committee on Taxation. General Explanation of Tax Legislation Enacted in
1997. Washington, U.S. Govt. Print. Off., 1997. p. 546.
c. U.S. Office of Management and Budget. Budget of the United States Government, Analytical
Perspectives, Fiscal Year 2002. February 2001. p. 47.

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