Excise tax on tobacco products

The combined federal and average state excise tax on tobacco products is estimated to reach $3.02 per pack in 2025, representing the sum of federal taxation and state-level averages. The average state excise tax component has remained relatively stable at approximately $1.97 per pack, while the federal component continues at $1.01 per pack. Current tax policy balances revenue generation needs with public health objectives, as higher cigarette prices have been consistently linked to reduced smoking rates.

The combined excise tax on tobacco products has experienced steady growth over the past five years, rising from $2.86 per pack in 2020 to an estimated $3.02 per pack in 2025. This upward trajectory reflects both federal stability and gradual state-level increases, with the average state tax growing from approximately $1.80 in 2020 to $1.97 in 2025. The tax rate has grown at a compound annual rate of approximately 1.1% during this period, driven primarily by individual states raising their excise taxes rather than federal adjustments.

The most dramatic shift in the combined tax structure occurred in 2009, when the federal component jumped from $0.39 per pack to $1.01 per pack to fund the State Children's Health Insurance Program expansion. This increase fundamentally reshaped the federal-state balance, as the federal tax briefly exceeded the average state tax for the first time in modern history. Prior to 2009, average state taxes had been climbing steadily from approximately $0.33 per pack in 1995 to $1.20 per pack in April 2009, representing a 267% increase over that 14-year period.

The period from 1980 to 2009 saw divergent trends between federal and state taxation that shaped the current combined rate structure. Federal taxes increased incrementally from $0.08 per pack in 1982 to $0.39 per pack in 2002, while state taxes accelerated more aggressively, particularly after the 1998 Master Settlement Agreement. The combined federal and state revenue from tobacco taxes grew from $2 billion in 1955 to $12 billion in 1993, though inflation-adjusted figures showed declining federal revenues as states compensated with more aggressive rate increases.