F or centuries, governments at all levels have taxed tobacco and
tobacco products. Historically, these taxes have been used be-
cause of their relatively low administrative costs and their substantial
revenue-generating potential. This potential was based, in large part, on the
perception that tobacco use was insensitive to price. However, over the past
several decades, numerous studies using a wide variety of data and statistical
methods have found that tobacco use is no exception to the basic principles
of economics. These studies clearly show that increases in the prices of to-
bacco products, including those that result from increased taxation, lead to
significant reductions in cigarette smoking and other tobacco use. With this
evidence, more recent increases in tobacco taxes have been motivated, at
least in part, by their potential to reduce tobacco use and its health conse-
quences. Critics of these taxes, however, argue that increases in taxes are
inappropriate and will have harmful economic effects, including increased
smuggling and significant job losses.

This chapter explores the use of tobacco taxes in the United States. The
history of federal and state tobacco taxes and the administration of these
taxes are briefly reviewed, followed by a discussion of the impact of increases
in taxes on the prices of tobacco products, including a discussion of industry
responses to higher taxes. We then describe the evidence from the large and
growing literature examining the effects of tobacco taxes on cigarette smoking
and other tobacco use. Rationales for tobacco taxation and a short discussion
of barriers to tobacco taxation follow. Finally, the chapter concludes by high-
lighting the potential for higher tobacco taxes as part of a comprehensive set

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