Money to Burn

While states are busy raising cigarette taxes, the federal government is planning a levy increase of its own. Recently proposed tax bills would boost federal cigarette taxes to 46 cents a pack from the current 24 cents.

Another proposal, backed by President Clinton, would boost the federal tax to 69 cents a pack.

For a Californian who now pays between $1.50 and $2.50 per pack (depending on the store and whether the consumer buys by the carton or the pack), the tax change could boost the cost of cigarettes by 30% to 50%--an expensive proposition for a heavy smoker.

Consider Joe Fume, a hypothetical 17-year-old with a pack-a-day habit. Over the course of a year, assuming the cost of cigarettes rises to $3 per pack because of the planned tax increases, Fume will spend $1,095 on smokes. Over five years, Fume will spend $5,475--the cost of getting a new stereo, VCR and computer system. Over 10 years, his habit will cost as much as a small car.

If he had saved his cigarette money and managed to earn 10% annually on it for 10 years, Fume would be well on his way to being rich. His $3 a day in savings would grow to about $18,692. If he simply left that alone, earning an average of 10% annually on it, not smoking would make him a millionaire.

To be specific, his $18,692 would grow to $1,003,778.30 by the time he turned 67.