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Price of smoking just got higher

Thursday, April 2, 2009

In an effort to prepare consumers for the increase in the cost of cigarettes, several retail stores posted information in advance for customers stating the price of cigarettes would increase on April 1, 2009, due to a federal excise tax increase.

When the prices started to rise prior to that date, many consumers were left with unanswered questions.

According to Modern Variety owner Ben Pilkenton, he started seeing the price hikes last month when wholesale companies started raising their prices. As a result of this, Pilkenton said he did see an increase in the purchase of cigarettes especially by cartons as customers attempted to stock-up prior to the April 1 federal tax increase.

Pilkenton also said some customers switched to cheaper brands in an effort to save money while other customers said they would attempt to quit smoking before discontinuing to smoke the brand of their choice.

"We tried switching to cheaper brands of cigarettes. Most likely we are going to have to quit because we can't afford the higher prices," said Angel Smith of Monett.

When asked what measure of quitting she would try, she simply replied "willpower."

The cigarette excise tax that tobacco companies, wholesalers and retail stores must pay the federal government increased yesterday by 61.6 cents per pack, or $6.16 per carton. This tax is known as a "floor stocks tax", a one-time excise tax placed on a commodity undergoing a tax increase.

Major tobacco companies began incorporating that increase into their prices to wholesalers over the past few weeks in part to restrain wholesalers from stockpiling cigarettes prior to the implementation of the tax and in anticipation of a drop in sales after the tax increases. Other tobacco products will see tax increases, too. Federal chewing tobacco taxes are up from 19.5 cents to 50 cents.Philip Morris USA, the largest tobacco company, raised Marlboro prices by 71 cents a pack in early March and prices on smaller brands by 81 cents a pack. Other major companies followed suit.

The federal taxes are being raised to fund a major expansion of health insurance for children. Officials expect to generate close to $33 billion over the next four and a half years for the health program expansion.

The Children's Health Insurance Program Reauthorization Act (CHIPRA) of 2009 was one of the first pieces of legislation passed by the 111th Congress and signed by President Barack Obama on Feb 4. According to the Alcohol and Tobacco Tax and Trade Bureau, United States Department of the Treasury, the CHIPRA Act increases the federal excise tax on all tobacco products and sets forth new permit and enforcement provisions for tobacco manufacturers, wholesalers and retail dealers.

In addition, reauthorization provides states with certainty in the federal financing for CHIPRA as states face worsening economic situations. As families lose employer-based health insurance coverage and incomes decline, states are faced with an increased demand for assistance at the same time they are facing severe budget shortfalls.

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