Thomas Tooke

War Financing with Tobacco Napoleonic Wars, Civil war and Spanish American war. Impact on consumption.

In Tobacco on June 16, 2012 at 2:46 am

It is a recurring fact in history that governments heavily use Tobacco as a tax collection mechanism, here we discuss the instances during which it was used to finance wars along with salient data about taxation and consumption and the higest taxation rates in 1905.

As Jacobstein wrote in 1907.

“The Napoleonic wars for a long time closed European markets to our products. The damage to our trade and commerce resulting from the Berlin and Milan Decrees, the Orders in Council and our own embargo, is a matter of history. Our tobacco trade suffered along with the others. In 1808 our exports fell from 62,000,000 hogsheads to 9,567 hogsheads of lead. Manufactured tobacco exports were similarly affected.

Moreover, these Napoleonic wars burdened European governments, especially England and France, with heavy public debts. To wipe off these debts, import duties were greatly increased on all products partaking of the character of luxuries, including tobacco. The tobacco tax had always been considered a lucrative as well as a justifiable one. These increased duties raised the prices of tobacco to the consumer proportionately, thereby cutting down consumption, or at least checking its rate of increase.  The falling of our exports was no doubt partly due to this factor. In England, for instance, the tax was raised in 185 on imported tobacco, from twenty-eight cents per pound to seventy-five cents per pound. This brought the duty up to nine hundred per cent ad valorem. England´s consumption consequently fell from twenty-two million to fifteen million pounds.”

” The English duties were so high that a special committee was appointed by Parliament to investigate the disturbed conditions of trade resulting from the increased tax. This committee reported that the prices of tobacco were so high that smuggling and adulteration of tobacco were made very profitable. The American Chamber of Commerce of Liverpool presented a petition to the committee requesting a reduction of duties on tobacco, on the ground that consumption, and hence trade, would increase for England and the United States. This Parliamentary investigation committee declared its belief that ” the annals of taxation do not exhibit an instance of such a heavy impost in any country as the present duty on tobacco.” (Nine hundred per cent ad valorem.) The like was true, though not to the same extent, in France, Austria, Spain and Italy, where the “Regie” was in vogue, and the government fixed prices arbitrarily. In our country the best snuff or manufactured tobacco could be bought at retail in 1840, for twenty-five cents per pound; whereas, the price in England was seventy-five cents per pounds for snuff and forty-five for manufactured tobacco; and in France the retail price was thirty-five cents per pound for the ordinary tobacco of both kinds used.”

From Jacobstein again:

“When, however, the influence affecting price is more permanent one, as a high tariff or internal revenue tax, then the reaction upon consumption is more noticeable. For instance, in the period from 1865 and 1868 when our internal revenue tax was increased from eleven cents to thirty cents per pound, consumption fell from one and three-tenths pounds to one pound per capita. The increase in the tax, during the Spanish-American War, on “manufactured tobacco” from six to twelve cents per pound, was accompanied by a decrease in consumption from three and nine-tenths to three and three-tenths per capita. ”

From Herbert Myrick and J.B. Killeberry.

” The United States internal revenues tax for the two years ended June 30th, 1864 was $1.50 per thousand on cigars valued at not over $5 per M, increasing to $3.5 on cigars valued at $20, an average of $2.37 per M on cigars of all descriptions. After June 30th, 1864, the tax was increased, for war purposes, to $3 per M, on cheroots and cigars valued at not over $5 per M; valued at over $5 and not over $15 per M, 8$  valued at $15 to $30; $15 per M; valued at $30 to $45, $25 per M. Cigarettes valued at not over $5 per 100 packages of 25 each, $1 per 100 packages; valued above that sum, $3; cigarettes made wholly of tobacco, $3 per M. By the act of March 3rd, 1865, cigars, cheroots and cigarettes made wholly of tobacco, or any substitute therefor, were taxed $10 per M, and cigarettes, valued at not over $5 per 100 packages of 25 cent. These war taxes were reduced by the act of July 13th, 1865, and March 2nd, 1867, and again July 20th, 1868. Under the later act, cigars and cheroots of all descriptions were taxed $5 per M; cigarettes weighing not over 3 pounds per M, were taxed $1.5, and heavier than that, $5. These rates prevailed until March 3rd, 1875, hwen cigars and cheroots were taxed $6 per M and cigarettes $1.75. These rates were again reduced March 3rd, 1883, to $3 per M for cigars  and cheroots of all descriptions and 50 cents for cigarettes weighing not over 3 pounds per M. These latter rates are still in effect. ”

The tariff on tobacco imported into the United States on leaf, or manufactured, was 6 cents per pound and snuff 10 cents per pound from 1789 to 1794, when it was advanced to 10 and 12 cents respectively, and remained there until 1846, except it was 20 and 24 cents from 1812 to 1816. In 1846, a tariff of 30 per cent ad valorem was imposed on leaf tobacco, which was made 24 per cent in 1857 and and 25 per cent in 1861 but in 1862 was raised to 25 cents per pound, and in 1866 to 35 cents per pound, continuing at that rate until 1874, when it was made 30 per cent ad valorem. From 1866 to 1883, the duty on snuff and manufactured tobacco was 50 cents per pound.

“The import duty on cigars and cheroots was $2.5 per thousand until 1842, when the rate was fixed at 40 cents per pound, which was changed to 40 per cent ad valorem in 1846 and 30 per cent in 1857 but in 1866-1867 was $3 per pound and 50 per cent ad valorem. This was changed to $2.5 per pound, and 25 per cent ad valorem, in 1868, and continued at that figure until 1883. ”

A quick comment: the Napoleonic wars were also a steep trade war between nations when trade collapsed. Tobacco consumption and imports were a key source of revenues during civil war. In  several instances those increases in taxes had the effect of reducing consumption.

To summarize from Jacobstein:

Here are few interesting set of figures dating from 1905 with the rate of taxation apparently impacting consumption.

Jacobstein writes in 1907:

“In France and Italy the rate of profits, or the tax, represents about eighty per cent of the gross selling price of the finished product, as compared with a fifteen to twenty per cent tax in our own country. Where the rate of profits is so high, the consumers are compelled to pay unreasonably high prices for their tobacco. For there is no good reason why this particular industry should be thus singled out and exploited by for government revenues.”

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