Abstract

The American cigarette industry's ability to pay large damage awards and settlement costs is not limited to its current annual profits of $7.6 billion, or $0.31 per pack. Much larger liability payments could be financed through increased wholesale cigarette prices or higher excise taxes. An increase in the federal cigarette excise tax of 50 cents per pack could yield an estimated $10.8 billion annually in net revenues available for liability costs, while the industry would still retain $5.4 billion, or $0.25 per pack, in pre-tax profits. An increase in cigarette price from its current $1.88 per pack to the full, monopoly profit-maximising level of $4.08 per pack would make more than $32 billion available annually for liability payments or pre-taxed profits.