Cigarette Tax Increase: Why the 94-Cent Tax Hike?

By Philip Ross on April 10, 2013 6:17 PM EDT

cigarette
The Federal tobacco tax would go up from $1.01 to $1.95 a pack if the Obama administration's 2014 budget proposal is adopted. (Photo: Flickr/MoneyBlogNewz)

The Obama administration presented its fifth annual budget proposal to Congress on Wednesday for the 2014 fiscal year, which begins Oct. 1. Buried in the 244-page document  is the administration's strategy to increase the Federal cigarette tax by 94 cents per pack. The White House says the cigarette tax increase will pay for children of low- and moderate-income families to go to preschool for free, a plan the president announced during his State of the Union address in February.

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The current proposed tobacco tax increase for 2014 would raise the Federal tobacco tax from $1.01 to $1.95 a pack.

The administration markets the proposed tax increase on cigarettes as a way to not only fund education, but to also curb smoking habits.

"[Passing the tax] would be a giant step toward winning the fight against tobacco, the nation's number one cause of preventable death," Matthew Myers, president of the Campaign for Tobacco-Free Kids, said in a statement.

According to the Centers for Disease Control and Prevention, or CDC, a 10 percent increase in the price of cigarettes is estimated to reduce the number of adolescents and young adults using cigarettes by about 4 percent.

"Increases in cigarette prices can lead to significant reductions in smoking prevalence by increasing cessation among smokers and reducing smoking initiation among potential young smokers," the CDC reports.

The last major Federal cigarette tax hike took effect in 2009, when the tax increased by 62 cents - from 39 cents a pack to $1.01.

From the administration's 2014 budget proposal:

Providing a year of free, public preschool education for 4-year-old children is an important investment in our future. It will give all our kids the best start in life, helping them perform better in elementary school and ultimately helping them, and the country, be better prepared for the demands of the global economy. Not only that, it could save hard-working families thousands of dollars each year in child care costs. This is an investment we need to make, and it is fully paid for in this Budget by imposing a new tax on every pack of cigarettes sold.

The administration's 2014 budget proposal projects a $973 billion deficit for this year, and a $744 billion deficit in 2014 - the first deficits to fall short of $1 trillion since President Obama first stepped into office in 2008. The Detroit News reports that the budget proposal calls for a number of spending cuts, including $100 billion from defense and another $100 billion from domestic programs over the next decade. It also calls for $400 billion to be trimmed from Medicare and other health care programs.

To raise money, the Obama administration would restrict deductions for the top 2 percent of family incomes, bringing in $580 billion in tax revenue, in addition to other measures.

If cigarette sales continued at the same rate as they are today, the 94-cent increased tax would bring an additional $14billion a year in revenue to the federal government.

The proposed Federal tax increase on cigarettes is in addition to state taxes on cigarettes, which range from under 50 cents to over $3 per pack (Connecticut has the highest state tax on cigarettes at $3.40 a pack; Virginia has the lowest state tax on cigarettes, at 30 cents a pack). The average combined state and Federal tax on a pack of cigarettes is $2.35, bringing the average cost of a pack of cigarettes today to $5.62.

What was Don Draper paying for a pack of cigarettes back in 1970? A mere 38 cents ($2.27 by today's purchasing power).  

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