Tobacco - Federal And State Regulation Of Tobacco Through Taxation

Even though cigarettes cannot be advertised on radio or television, they are the most heavily advertised product in the United States. In the early 1990s, in an attempt to raise revenue for the federal government, bills were introduced in Congress to restrict the amount of advertising expenses that tobacco manufacturers could deduct from their gross income. (In 1993, tobacco companies deducted an estimated $1 billion from their gross income for advertising expenses.) The proposed bills would have used the extra revenue to fund education programs to stop underage smokers and to reduce the federal deficit. The bills did not become law, however.

States have long collected excise taxes on sales of cigarettes. As of 2003, New Jersey imposed the highest excise tax, at $2.05 per pack, and Kentucky (a tobacco-producing state) had the lowest, at 3 cents per pack. Excise taxes were also imposed on chewing tobacco products. Studies completed in the 1980s demonstrated that as the price of chewing and smoking tobacco increases, consumption of those products decreases.