Although cigarettes were not popular in the United States until the mid-19th century, the federal government still attempted to implement a tax on tobacco products such as snuff early on in its history. In 1794, secretary of the treasury Alexander Hamilton introduced the first ever, federal excise tax on tobacco products. Hamiltons original proposal passed after major modifications, only to be repealed shortly thereafter with an insignificant effect on the federal budget.[1] Even though Hamiltons tax on tobacco failed, tobacco taxation continued to play an important role in American history.
On July 1, 1862, the United States Congress passed excise taxes on many items including tobacco. This occurred as a result of the Union armys increasing debt during the American Civil War and the Federal governments need for additional revenue. After the war, many of these excise taxes were repealed but the tax on tobacco remained. In fact, by 1868 the Governments main source of income came from these lingering tobacco taxes.[2]
Despite the excise tax of the Federal government, states did not ratify a tobacco excise tax until well into the 20th century. In 1921, Iowa became the first state to pass a tobacco excise tax at the state level in addition to the federal tax.[3] Other states quickly followed suit, and by 1950, 40 states and Washington D.C. enacted taxes on cigarette sales.[4]
Since at least 2005, all U.S. states, the District of Columbia and the territories have cigarette taxes. In addition, several cities such as San Francisco and New York City have implemented their own citywide cigarette tax. New York City has a citywide tax of $1.50, making the combined state and local rate $5.85, the highest in the nation. Missouri's rate is the lowest, at 17 cents.
[edit] Under the Obama Administration
On February 4, 2009, the Children's Health Insurance Program Reauthorization Act of 2009 was signed into law, which raised the federal tax rate for cigarettes on April 1, 2009 from $0.39 per pack to $1.01 per pack.[5][6] The purpose of the State Childrens Health Insurance Program (SCHIP) is to provide aid for impoverished children. With the increased revenue from tobacco taxes SCHIP can now afford to include families with up to three times the federal poverty level as well as children from high-income families in New York and New Jersey. SCHIP will also be able to cover dental benefits and treatment of mental illnesses where it previously could not. In addition to providing these services for U.S. citizens, SCHIP is also expanded to cover immigrant children and immigrant pregnant women.[7]
