This caused tremendous pressure to the government leading to the enactment of the Tobacco Inspection Act that directs the Secretary of Agriculture to impose controls on the tobacco Industry ( McGrew ). In addition to this, McGrew asserts that the government imposed regulation since “ the tobacco industry provided more than $4.8 billion in taxes in 1971” (USDA, Tobacco Situation, 1971b: 44). Strictly speaking, the first federal excise tax on tobacco was included in the Alexander Hamilton’ s tax package of 1794 which was restricted by Congress after a few debates. Later on, the interest to gain revenue from tobacco grew during the Civil war.
In July 1, 1862, the first ad valorem tax for cigars was enforced, followed by tax increase in 1865, 1866 and 1875. Amazingly, in 1880, revenues from tobacco contributed to 31% of total federal tax receipts in which 50% of these collections came from smoking and using tobacco ( Heimann, 1960: 156). The revenue generated by tobacco products have risen drastically annually that by 1970, the Tobacco Tax Council reported a staggering revenue of no less than $2 billion dollars ( Tobacco tax Council 1970:5 ). Columbia along with 40 states imposed taxes.
The state of Louisiana recorded the highest tax levy ( 8% ) for a pack of cigarettes among the states. In 1966, Oregon followed suit in the imposition of taxes on cigarettes which was followed by North Carolina in 1969. During the 60s, many local governments even added further excise taxes on the state taxes which contributed heavily to the state’ s revenue. No wonder, the federal and state governments treat tobacco as a “ gold mine” since it contributes to no less than $14 billion dollars annually in the form of excise tax. For centuries, countries around the world find tobacco as a good source of revenue since aside from being relatively inelastic, it is not a necessity but widely consumed by the public.
The main motivator for tobacco taxation before was simply to generate revenue for the government.
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