During the first week of February, Congress passed a legislation to increase the federal tax on cigarettes and other tobacco products to fund reauthorization and expansion of the State Children's Health Insurance Program (SCHIP). Further, the proposed federal cigarette taxes are expected to force the residents to quit smoking or avoid starting.
The legislation that increases the federal cigarette tax by 61 cents from 39 cents to $1 per pack will be effective from April 1. In addition to the federal tax, law makers in more than a dozen states are considering raising their cigarette taxes to fund a number of health programs across the states. For instance, Arkansas' already passed a 56-cent increase, would pay for a statewide trauma system and host expanded health programs.
In the US, the manufacturers of the cigarettes pay federal excise taxes on cigarettes, while wholesalers cover state taxes when they sell to gas stations, convenience stores and other retailers. As a result of the tax hikes, several manufacturers across the US would look to put pressure on the customers to buy the cigarettes at higher prices. Though, the Federal tax hike remains weeks away, two US cigarette makers already announced the increase in the price of cigarettes without citing any reason for the increase.
Altria Group, which owns operating companies engaged in the manufacture and sale of smokeless tobacco products and wine, raised wholesale prices for its signature Marlboro line and some lower-cost brands. Marlboro, Virginia Slims, Basics and other cigarettes rose nine cents a pack or 90 cents per carton, while the premium brands like Chesterfield and Merits increased 18 cents a pack or a $1.80 a carton.
In response to the hike, the company said that it has followed a periodic evaluation of its strategies to alter the prices of cigarettes to deal with a declining cigarette market for a number of years now. Further, the company reiterated the fact that the price hike is not a response to the looming federal tax increase, signaling a further increase in price in the event of federal tax hike.
On the other hand, Reynolds American., the second-largest cigarette company has cut some of the discounts it offers to wholesalers as a result of its weak fourth-quarter profit (a 13 percent declined resulting from reduced cigarette volume). Reynolds, whose brands include Camel, Pall Mall and Natural American Spirit, cut back on discounts ‘to remain competitive in the marketplace’, said company spokesman Frank Lester. Reynolds hasn't decided whether to raise prices or how long the discounts will be cut, Lester said. Besides, most of the experts on the street expect that the company could increase the price of its products as the government enforces the federal tax hike.
As result of the price increase, advocacy groups and lawmakers expect further decline in the cigarette use, which is already falling 3 to 4 percent every year. If this happens to be true, then the US can witness the reduced human suffering, improved public health, and reduced public and private health costs. This could also prevent thousands of kids from becoming addicted adult smokers.
