(CREDIT: Alosh Bennett, Flickr)
The Tobacco Tax Act introduced in Congress (p. 1314 and HR 2786) would increase federal excise taxes on cigarettes and other tobacco products and create a new federal excise tax on e-cigarettes.
Both versions of the bill would double the excise tax on cigarettes from $ 1.01 per pack to $ 2.02 per pack, double the roll-your-own tobacco tax, increase pipe tobacco tax by more than 16 percent, and “could increase the federal taxes paid on some premium cigars by more than 800 percent. ”E-cigarettes would, as determined by the finance minister, be subject to the same tax rate as flammable cigarettes. All state tobacco and steam taxes would continue to be increased based on the rate of inflation.
The purely democratic sponsors claim that, according to data, “increasing the price of tobacco products is the most effective way to reduce tobacco consumption, especially among young people”.
Unfortunately, while a cigarette tax increase is a comfort measure, it is an undue burden on lower-income individuals who 1) tend to smoke in greater numbers and 2) spend more of their disposable income on tobacco products. Furthermore, analyzes show that rising cigarette taxes reduce the smoking rate – but above all for people with higher incomes.
Major sponsors of the legislation include the Illinois Democrats, Senator Dick Durbin and Rep. Raja Krishnamoorthi. In 2019, 46.5 percent of current adult smokers in their home state reported earning less than $ 24,999 a year. By comparison, only 10.7 percent of current adult smokers reported an income of $ 50,000 or more in 2019. Nationally, more than half (55.9 percent) of current adult smokers in the United States reported making less than $ 25,000 a year.
Not only do low-income people smoke larger amounts, they also spend more of their hard-earned money on flammable cigarettes. An article in the Cato Journal found that from 2010 to 2011, smokers who earn less than $ 30,000 a year spent 14.2 percent of their household income on cigarettes. Smokers who made between $ 30,000 and $ 59,999 spent 4.3 percent, and those who made more than $ 60,000 spent 2 percent of their income on cigarettes.
Higher taxes will also reinforce the existing black market for cigarettes. New York City has the highest cigarette tax rates and a huge black market for untaxed cigarettes. It is estimated that 60 percent of cigarettes consumed in the Big Apple are untaxed.
The tax hike also comes amid the uncertainty surrounding electronic cigarettes and vape products. Four states – including Massachusetts, New Jersey, New York, and Rhode Island – are currently banning the sale of flavored e-cigarettes, with Massachusetts also banning the sale of menthol cigarettes. All of this is happening while the Food and Drug Administration is now just weeks away from a court-imposed deadline to clear e-cigarettes for sale in the US market.
The regulatory landscape has undoubtedly already had a negative impact on states. For example, long before the state banned tobacco and steam, Massachusetts was grappling with illegal cigarette smuggling. After Massachusetts raised cigarette tax by $ 1.00 to $ 3.51 per pack, Treasury Department economists estimated untaxed cigarette consumption in the state would increase, “between $ 62 million and $ 246 million of excise duties not collected ”. A 2017 study by the Mackinac Center found that illegal cigarettes introduced into the Commonwealth rose more than 144 percent, from 12 percent in 2013 to 29.3 percent in 2014.
Massachusetts is currently battling another illegal market – illegal flavored tobacco and steam products – that the state banned in June 2020.
The ban is said to have cost the state “more than US $ 140 million for menthol cigarettes alone”. It’s not that people stop smoking or vaping, they have moved elsewhere, especially to neighboring states. In an analysis by the Tax Foundation, researchers found that cigarette sales in New Hampshire and Rhode Island skyrocketed between June 2019 and June 2020 (55.8 percent and 56 percent respectively). Hampshire raised $ 198.8 million in tobacco tax revenue, which rose 6.9 percent to $ 212.5 million at the end of fiscal 2020.
It should be noted that while Democrats claim such tax increases will help reduce smoking prevalence, the proportion of low-income smokers among adult smokers has not increased since the last federal tobacco tax hike in 2009 In 2009, 31.5 percent of adult smokers earned less than $ 15,000 and 28.1 percent reported an income between $ 15,000 and $ 24,999. In 2019, 30.8 percent of current adult smokers reported making an income of $ 15,000 or less, and 25.1 percent reported making between $ 15,000 and $ 24,999.
Higher cigarette taxes will disproportionately harm people on lower incomes and enlarge the black markets that already exist. Rather than putting additional burdens on poor smokers, lawmakers must stop burning existing tobacco dollars and spend more money on tobacco control programs.