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How Are Cigarette Taxes Spent by the Government?

When a consumer purchases a pack or carton of cigarettes, federal and state taxes account for a considerable portion of the price.

When the federal government receives tax revenue from cigarette sales, it spends the money in several venues.

First, it distributes a portion of the funds back to the individual states; since many states depend on federal subsidies to fund a number of their social works programs, the tax dollars eventually filter back into state parks and local communities. With the remaining funds, the federal government funds health-related programs deployed on a national level; some of these programs include tobacco and general health education, cancer research grants and military health benefits.

States Use Funds for Health Care

While the federal government collects taxes from cigarette sales, state governments generally collect considerably more funds each time a consumer purchases cigarettes.

According to a 2008 article in The New York Times, a pack of cigarettes purchased in Maryland would carry 39 cents in federal taxes and around £1.30 in state taxes. The tax revenues collected by states can be used in a number of ways, and many states elect to use the funds for specific health-related agenda items like Medicare and Medicaid, Department of Health funding and state health programs for low-income families. In a 2002 article in the West Virginia newspaper The State Journal, then-Gov. Bob Wise vowed that all funds collected from a pending cigarette tax hike would be dedicated to the state's Medicaid program.

States Also Use Funds for General Budget Items

States do not always distribute all of the funds collected from cigarette taxes to health-related issues, though, as many states use the money to plug gaping holes in state budgets. By adding cigarette tax funds into the state's general ledger, state governments can fund items ranging from state parks to payroll for the highway patrol.

Some states also choose to simply squirrel away the money collected from cigarette taxes, allowing the money to collect interest that can then be spent on high-priority budget items. According to the Independence Institute, a Colorado-based government watchdog, a 1999 bill requires Colorado to place cigarette tax money into a trust fund, allocating only 6 per cent of the principle balance for spending each year.

Municipalities Also Spend Cigarette Taxes

Depending on where consumers shop, they might pay an additional cigarette tax imposed by the local municipality. According to The New York Times, municipalities collect over £390 million dollars each year in cigarette taxes, with New York City collecting as much as a 90p for each pack of cigarettes sold in the city's five boroughs.

Like the funds collected by states, the money collected at the municipal level is largely unregulated and may be spent on a number of purposes. Depending on the municipality's needs, cigarette tax funds may be allocated to local health programs, traffic enforcement or even city employee payroll.