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Retail Price, Excise and Sales Taxes, Manufacturers Revenues, and Wholesale/Retail Margins on Cigarettes, 1994-1997

The results in Table 1 contradict the hypothesis that increases in manufacturers’ wholesale prices resulting from settlement costs somehow cause other components of price to rise in tandem. With the exception of state excise taxes, which have been rising about a 1-percent annual real rate, the other components of price – Federal excise taxes, state sales taxes, and wholesaler/retailer markups – have not kept pace with inflation.

  Calendar Year Real Annual Average
Calendar Year
Change (Percent)
  1994 1995 1996 1997 1994-1996 1994-1997
1. Expenditures on Cigarettes, Excluding Sales Taxes ($billions) 44,544 45,793 47,233 48,734  
2. State Sales Tax Revenues on Cigarettes ($billions) 2,016 2,083 2,007 2,086  
3. State Sales Taxes as Percent of Pre-Tax Price 4.53% 4.55% 4.25% 4.28%  
4. Total Expenditures on Cigarettes ($billions) 46,560 47,876 49,240 50,820  
5. State and Local Excise Taxes on Cigarettes ($billions) 7,220 7,717 7,817 7,926  
6. Total Cigarette Consumption, USDA Series (billions, cigarettes) 486 487 487 480  
7. Nominal Retail Price per Pack (cents) 191.6 196.6 202.2 211.8 -0.2% 1.0%
8. Nominal State and Local Excise Tax per Pack (cents) 29.7 31.7 32.1 33.03 1.0% 1.3%
9. Nominal State Sales Tax per Pack (cents) 8.3 8.6 8.2 8.7 -3.1% -1.6%
10. Nominal Federal Excise Tax per Pack (cents) 24.0 24.0 24.0 24.0 -2.8% -3.9%
11. Nominal Mfrs + Wholesale/Retail Revenues per Pack (cents) 129.6 132.4 137.9 146.0 0.2% 2.0%
12. Nominal Manufacturers Revenues per Pack (cents) 70.1 72.6 76.5 83.20 1.5% 4.7%
13. Nominal Wholesale/Retail Margin per Pack (cents) 59.5 59.8 61.4 62.83 -1.3% -1.3%
14. Wholesale/Retail Margin as a Percent of Manufacturers' Price (%) 20.0% 19.6% 19.4% 18.8%  
15. Consumer Price Index (percent of 1982-1984) 148.2 152.4 156.9 160.5  

Notes to Table:

1. Source: USDA Economic Research Service. Tobacco Leaf Situation and Outlook Report . Expenditures for tobacco products and disposable personal income, 1986-97. Updated 5/4/98.
2. USDA Economic Research Service. op. cit. Table 23. Governmental revenues from tobacco products, 1986-96. Updated 5/4/98.
3. Line 2 ¸ Line 1.
4. Line 1 + Line 2.
5. USDA Economic Research Service. op. cit. Table 23.
6. USDA Economic Research Service. op. cit. Table 1. Cigarettes: U.S. output, removals, and consumption, 1988-97. Updated 5/4/98.
7. 2 ¥ Line 4 ¸ Line 6.
8. 2 ¥ Line 5 ¸ Line 6.
9. 2 ¥ Line 2 ¸ Line 6.
10. Based on prevailing Federal tax rate of $12 per 1,000 units.
11. Line 7 – Line 8 – Line 9 – Line 10.
12. Based on the data from company annual reports and the Maxwell Reports (Tobacco Reporter, March 1996, April 1997, May 1998, in press). The first row shows total unit shipments (in billions of cigarettes) for three firms: Philip Morris, RJ Reynolds, and Lorillard. The second row shows total net sales of these three firms. (The PM and Lorillard annual report include Federal excise taxes in net sales. Since the RJ annual report excluded Federal excise taxes, RJ Reynold’s share was added back to this line.) The third line shows the 3-firm revenue per pack sold, inclusive of Federal excise tax, while the fourth line excludes the Federal excise tax. The latter data reflect receipts by firms with a disproportionate share of the premium-priced market. Data for Brown & Williamson, however, were available only for 1996. (See Brown & Williamson Tobacco Corporation Annual Review 1996). The fifth, sixth and seventh lines therefore compute revenues per pack less Federal excise taxes for four firms in 1996. The 4-firm estimates for the remaining years were based on the assumption that ratio of 4-firm to 3-firm prices remained constant.
13. Line 11 – Line 12.
14. Line 13, (Line 7 – Line 10 + Line 11).
15. CPI, All Urban Consumers, Annual Average.
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Published October 13th, 2011 by admin · Cigarettes

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