Smoking a monetary boon; provides state and federal governments with billions of dollars in tax revenue every year

Last week Russia’s finance minister, Alexei Kudrin, told his countrymen that they “should drink and smoke more.” He explained that with a recent sales tax hike, an increase in the consumption of alcohol and cigarettes would help raise tax revenues. “People should understand: Those who drink, those who smoke are doing more to help the state,” he said.

In America the picture is similar, especially as it pertains to cigarettes. Indeed, given the amount of funding for social programs smokers in this country provide, it could be considered an injustice to ban these revenue generating heroes from helping light up the government treasury in most government buildings.

Between state and federal taxes, smoking is a monetary boon for the government. In fiscal year 2009, the federal excise tax on cigarettes was $1.01 a pack and state excise taxes ranged from 7-cents in South Carolina to $3.46 in Rhode Island. On average, state and federal taxes accounted for nearly half the price of an entire pack.

Since the beginning of this year, the U.S. government at all levels has collected well over $23.4 billion in cigarette taxes and since 1998, more than $356 billion.

The money government receives from cigarettes goes toward tobacco related health programs and the State Children’s Health Insurance Program (SCHIP). According to NoCigTax.com, the government also funnels funds toward school construction, Medicaid, and rural economic development, among other social programs.

John Singleton, communications director for Reynolds American Inc., told The Daily Caller that last year’s federal tax increase on cigarettes, intended to raise more money for SCHIP, was a sacrifice for many low income Americans. “Our issue was that the funding shouldn’t come from essentially one source,” Singleton explained. “People just think it is the tobacco companies that are just going to pay. Actually, it is the consumers who pay and [they] tend to be moderate to lower income. This was the first violation of the president’s pledge not to raise taxes on people making less than $250,000 a year.”

John Nothdurft, budget and tax legislative specialist at The Heartland Institute, told TheDC that despite the relentless demonization of smokers, the government will not outlaw the cigarettes because they are so reliant on the tax revenue it generates. “Neither federal nor state governments are going to ban cigarettes any time soon,” Nothdurft said. “They are going to regulate it, they are going to tax it higher, but they will never outright ban it because there is so much money wrapped into it.”

This fact has not escaped The Campaign for Tobacco Free Kids. Spokesman Dan Cronin told TheDC that while his group in no way favors smoking, he sees the high smoking tax as a benefit in so far as it raises revenue and induces people to quit. “They also help to prevent children from smoking,” Cronin said. “All the evidence has shown this is the case.”

While health education and high taxes have lowered the smoking rate, many states still look to make up budget shortages through raising taxes on cigarettes. Nothdurft notes that this is a bit of a problem since raising taxes tends to lead to less smoking or avoidance of the tax through the black market. “For that reason it is also risky to rely on these taxes to fund SCHIP, which is becoming more and more expensive,” he said. “And then you have this revenue source which is getting lower and lower each year.”