Democrats propose 'exceedingly regressive' tobacco and nicotine tax hikes

Democrats are pushing to increase tobacco and nicotine taxes to help fund their multitrillion-dollar spending package.

The proposals, which would increase the excise taxes on cigarettes and tobacco products while creating new levies for vaping, are anticipated to raise $96 billion over the next decade but are being derided by some as regressive tax hikes that will cull from the paychecks of lower-income earners rather than the wealthy.

The excise taxes will be imposed on companies, although tobacco and vape users would likely see cost increases. The increases, which vary depending on the type of tobacco or nicotine product, weight, and potency, would be the first federal increases to tobacco excise taxes in more than a decade.

The proposal would double the current federal excise taxes on both cigarettes and cigars. The last time the excise taxes on these products were raised was in 2009, when they were increased to fund the Children's Health Insurance Program, which helps states provide low-cost health coverage to children in families that earn too much to qualify for Medicaid.


Smokeless tobacco is also being targeted by the legislation, which would balloon federal levies on snuff from $1.51 per pound to $26.84 per pound and chewing tobacco from about 50 cents per pound to $10.70 — a 21-fold increase.

Many longtime cigarette users have turned to vapor-based products for their relative health benefits and may soon be feeling the sting.

Vapor products will be taxed at a rate of $100.66 per 1,810 mg of nicotine, which works out to a federal tax of $2.25 per pod-based product — more than the $2.01 tax on a pack of cigarettes that the new law would bring. The $100.66 figure is being used because it equates to the proposed tax per 1,000 cigarettes (the current federal excise tax is $50.33 per thousand).

President Joe Biden has been emphatic about the notion that those making below $400,000 per year will not see any tax increases from his spending plan, but the tobacco tax would impact those on the lower end of the economic spectrum. The Tax Foundation, a think tank that generally favors lower taxes, released an analysis of the proposal that found the provisions would indirectly impose further taxes on those earning the least.

"As a source of general fund revenue, the tax is exceedingly regressive," the Tax Foundation said. "The vast majority of smokers have lower incomes, and tobacco is one of the few goods that have an inverse relationship with income in that consumption increases as income decreases."

It would also mark the first time that the government has taxed e-cigarettes at the federal level, a move being lauded by the Campaign for Tobacco-Free Kids, which pointed out in a news release that a high number of children have become addicted to the products.

The group highlighted that last year 3.6 million middle and high school students, including 20% of high schoolers, used e-cigarettes.

Doubling the federal cigarette tax would decrease the number of adult smokers by 1.1 million in the first year alone while stopping more than 500,000 children from becoming smokers and would save hundreds of thousands of lives in the long run, the group said.

It also raised the issue of health disparities, noting that those in lower-income brackets shoulder the burden of the negative health effects from smoking and are more likely to quit in response to cost increases.

"A tobacco tax increase is a win-win-win solution — a health win that reduces tobacco use and saves lives, a financial win that reliably raises revenue and a political win that polls consistently show is popular with voters," the Campaign for Tobacco-Free Kids said.

The tax proposal is one of several being raised to help pay for Democrats' wide-reaching spending package.


Other revenue-raising measures include increasing the capital gains tax for high earners, raising the top marginal income tax rate from 37% to 39.6%, and hiking the corporate tax rate. Democrats also want to impose a new 3% surtax on people making more than $5 million.

Taken together, the tax code changes will raise nearly $2.1 trillion, the nonpartisan Joint Committee on Taxation estimates. When tax breaks for housing, green energy, and other Democratic priorities are factored in, the plan would generate $871 billion in net revenue, the committee found.

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