Despite a decline in smoking, annual spending by Americans on cigarettes is climbing and probably will continue to do so through the rest of this century, says an Agriculture Department economist.
"Manufacturers will face falling domestic volume and will need to raise prices to maintain profits," Verner Grise said. "Tax rates of state and local governments will continue to rise. The need for additional tax revenues is mounting, and tobacco taxes, especially cigarettes, have been a mainstay of state revenue systems for many years."Grise, who specializes in tobacco analysis for the department's Economic Research Service, said that in addition to federal and state taxes "a growing number of local jurisdictions are looking to the same revenue source."
Reporting in the agency's latest Agricultural Outlook magazine, Grise said there have been dramatic changes in the last decade.
"Spending for cigarettes is double what it was 10 years ago," he said. "But the rise reflects higher prices, not more use. U.S. consumption has fallen 10 percent from its peak of 640 billion cigarettes in 1981. Retail cigarette prices, on the other hand, have risen about 90 percent since 1980."
Most of the increase has been from higher manufacturer and wholesale prices and from the boosts in taxes. Prices go up to maintain or enhance profits as well as to cover rising manufacturing costs.
Last year, Grise said, Americans spent about $33.5 billion on cigarettes, a little more than 1 percent of consumer disposable income and approximately the same proportion as 10 years ago.
Cigarette excise taxes totaled about $9.7 billion in 1987, compared with $6.6 billion in 1980, he said. Federal taxes accounted for 49 percent, with state and local governments the remainder.
But looked at another way, total excise taxes only accounted for 29 percent of consumer expenditures on cigarettes in 1987, down from 34 percent in 1980. Grise said that although taxes rose, the marketing bill for manufacturing, distributing and merchandising cigarettes increased faster.
The United States has had an excise tax on cigarettes since 1862.