The current spending package, led by the Democrats in Congress, could be a truly transformative achievement, solving many of the systemic and short-term problems facing the American people.
However, many of the benefits of this bill could be completely wiped out if legislature made a provision called the Tobacco Tax Equity Act.
This bill, first unveiled last spring, has largely gone under the radar, but if it passes the Reconciliation Act, it will punish low-income Americans, shut down small businesses, and fuel a new wave of criminal activity.
The Tobacco Tax Equity Act would double the federal excise tax consumers pay on buying tobacco products, adjust it for inflation, and tax non-flammable cigarette alternatives – like vaping devices – at the same rate as traditional cigarettes.
It’s supposed to encourage smoking cessation, especially among minors, but when you look at that, it becomes clear that there is a significant gap between the intentions of the law and its ultimate results.
First of all, this provision would violate President Biden’s election promise not to impose taxes on anyone who earns less than $ 400,000 a year. Excise taxes are inherently regressive, meaning that lower-income Americans pay a higher proportion of their income because the tax is collected at the point of sale.
Since low-income Americans smoke far more often than high-income earners, any increase in tobacco tax would be primarily a tax on the poor. In fact, the Tax Foundation found that “the burden of the proposed cigarette tax increase on the lowest-income 20% of households is 37 times greater than if the government raised the money in federal income tax.”
To make matters worse, this proposal would also target small businesses that are still struggling to recover from the pandemic. According to the American Lung Association, convenience stores generate more than a third of their revenue from tobacco sales.
An increase in excise tax would reduce sales, deprive these companies of vital revenue and potentially force them to shed or close jobs altogether. The economic impact would completely offset government revenues from the tax hike.
Some people might say that reducing tobacco sales is the idea, but here’s the thing: just because people are less likely to buy them in a legal market doesn’t mean they won’t buy them at all.
Nicotine is an addicting substance, so the mere increase in the price of tobacco will not stop people from wanting to smoke. Criminal companies and gangs will inevitably step in to sell cheaper products on the illegal market – which is already happening in high tax areas.
In New York City, which has some of the highest tobacco taxes in the country, it is estimated that up to 80% of cigarettes sold are illegally obtained. If the federal excise tax on tobacco is increased, New York’s problem will become everyone’s problem.
After all, this suggestion would actually make it harder for people to quit smoking.
Non-flammable smoking alternatives like steamers are up to 95% less harmful than traditional cigarettes – which is why some governments like the UK are actually encouraging smokers to switch to these alternatives.
The Tobacco Tax Act would tax these products in the same way as flammable materials, rather than taxing them on the basis of relative harm, which means there would be little financial incentive for smokers to switch.
President Biden’s reconciliation package has the potential to make incredible strides for many people, but if they try to incorporate the Tobacco Tax Justice Act as a means of payment, much of that progress will be undone.
As Congress works on the budget reconciliation package, it is imperative that it stand by working Americans and small businesses and oppose any federal excise tax hike on tobacco products.
Traci Nelson is President of the West Virginia Oil Marketers & Grocers Association