Critics of the nationwide tobacco liability settlement proposed last June complained that it did not include a cigarette tax hike. Not long after the deal was announced, Congress approved a budget package that will raise the federal excise tax by 10 cents a pack in 2000 and another 5 cents in 2002--far less than anti-smokers would like. The current federal tax is 24 cents, and state taxes range from 2.5 cents to more than 80 cents a pack. For the average pack of cigarettes, the total tax represents about a third of the price.
Self-styled progressives, who usually favor redistribution of income from the top down, are nevertheless fond of tobacco taxes, which fall much harder on the poor than the rich. These taxes are especially regressive because the poor are more likely to smoke and because poor smokers spend a larger share of their income on cigarettes than affluent smokers do. In 1990, reports Harvard economist W. Kip Viscusi, smokers represented 19 percent of Americans earning $50,000 or more a year and about 32 percent of those earning less than $10,000. Tobacco taxes consumed 0.4 percent of the median income for smokers in the first group, compared to 5.1 percent for smokers in the second group--nearly 13 times as much. Providing further evidence of the cigarette tax's disproportionate impact, the Tax Foundation estimated where the burden of the recently enacted 15-cent increase will fall.