Since 1998, tax hikes have boosted the price of cigarettes in California to approximately $4.00 per pack, higher than in many other states and nations. Two tax hikes occurred in November 1998: Voters narrowly approved Proposition 10, and at the same time California joined 45 other states in the Master Settlement Agreement with the four largest tobacco manufacturers.

Graphic 22: California Cigarette Excise Tax Rates Since 1959

Graphic 22: California Cigarette Excise Tax Rates Since 1959 - click to enlarge

Source: Orzechowski & Walker.

Proposition 10 raised the tax rate from 37 cents to 87 cents per pack,[179] and the MSA raised nationwide cigarette prices by nearly $250 billion over the next 25 years, or approximately 45 cents per pack.[180] The federal government then raised its rate 15 cents, first by a dime in January 2000 and then by a nickel in 2003, bringing the federal tax to 39 cents.[181] In 2006, California voters defeated Proposition 86, which would have increased the tax per pack from 87 cents to $3.47, the highest tax in the nation.[182]

The combined effects of state and federal tax hikes during the past decade have made casual and commercial smugglers willing to skirt the law.


[179] "Prop. 10: Cigarette Tax Initiative Squeaks Through in California," Reuters, November 4, 1998.

[180] Milo Geyelin, "Forty-Six States Agree to Accept $206 Billion Tobacco Settlement," Wall Street Journal, November 23, 1998.

[181] William Orzechowski and Robert Walker, The Tax Burden on Tobacco, Historical Compilation 40 (2004), 249. 

[182] Smartvoter.org, "Proposition 86: Tax on Cigarettes, State of California," (League of Women Voters of California Education Fund, November 14, 2006), http://www.smartvoter.org/2006/11/07/ca/state/prop/86/, accessed October 4, 2008.