Federal Excise Taxes on Tobacco Products: Rates and Revenues

Abstract:

This report examines increases in excise tax rates on tobacco products contained in the Balanced Budget Act of 1997 (P.L. 105-33). Under that Act, the increased rates on tobacco products became effective in two stages. The first scheduled increase in rates occurred on January 1, 2000, while the second increase in rates occurred two years later on January 1, 2002. The increased rates apply to all tobacco products. In addition, the Act included a new excise tax on roll-your-own tobacco which became effective January 1, 2000. Also included in the Act were expanded compliance measures designed to ensure collections of tobacco excise tax monies. As a result of payments made by tobacco companies under the Master Settlement Agreement and the resulting increase in the cost of tobacco products, tobacco consumption declined. Thus, projected federal tobacco revenues have declined somewhat when compared to prior revenue estimates made at the time of the Balanced Budget Act's passage. This report will be updated as legislative developments warrant.