Democrats on the House Ways and Means Committee circulated a draft plan to raise $2.9 trillion in taxes to pay for the $3.5 trillion reconciliation bill. It includes an increase in the federal tobacco excise tax and applying the tax to novel tobacco products, including e-cigarettes.
The latest proposal would double the tax rate on combustible cigarettes to $2.02-per-pack and exorbitantly increase the existing tax rates on other tobacco products. For example, the tax rate on snus and other “discrete use” tobacco products would increase by more than 2,800 percent. Moreover, the proposal would create a new tax on vapor products at a rate that is higher than combustible cigarettes. Under the tax plan, one JUUL pod would be subject to a $2.30 tax, compared to $2.02 for 20 cigarettes.
With the legislation, Democrats are attempting to establish tax parity among all tobacco products, despite the U.S. Food and Drug Administration (FDA) recognizing a continuum of risk among tobacco products, with combustible cigarettes having the greatest risk. In the proposal, IQOS (a heated tobacco product that the FDA has recently deemed a modified risk product) would be subject to a greater tax burden than combustible cigarettes.
Any increase on tobacco products disproportionately impacts lower-income persons and is in direct conflict with President Joe Biden’s promise to not raise taxes on Americans earning less than $400,000 per year. Worse, constituents from Senate Democrats’ own states, including senators Sherrod Brown (D-Ohio) and Joe Manchin (D-W.Va.), would ultimately pay more for Washington’s tax and spend plan than House Ways and Means Chairman Richard Neal’s (D-Mass.) constituents.
In 2019, according to data from the Centers for Disease Control and Prevention, 19.1 percent of American adults were current smokers. In Ohio, 20.8 percent of adults were current smokers and in West Virginia 23.8 percent of adults smoked. Comparatively, in the same year, only 12.1 percent of Massachusetts adults were current smokers. If Democrats in Washington, D.C. are successful in increasing the tax rate, smokers in Ohio and West Virginia would collectively pay more than $1.6 billion to D.C., annually, compared to only $492.6 million from smokers in Massachusetts.
As a tobacco harm reduction tool, e-cigarettes should not be subject to an excise tax because they are 95 percent safer than smoking. In 2018, Scott Gottlieb (former director of the FDA) noted that the agency sees “the possibility for … products like e-cigarettes … to provide a potentially less harmful alternative.” More recently, in August 2021, 15 tobacco control experts penned an article in the American Journal of Public Health urging policymakers to embrace e-cigarettes as a tool to help increase smoking cessation.
Rather than taxing these products, lawmakers should be enacting policies that encourage their use. If policymakers must put a tax on these products, that rate should be based on the percent of the risk of the product and never in parity with combustible cigarette tax rates.
Most disturbingly, the latest tax proposal won’t even be used for tobacco control programs which would include education, prevention, and helping smokers quit. Not that this comes as any surprise because each year the federal government allocates very little towards tobacco control. In 2019, the CDC awarded only $66.9 million towards such programs, despite the federal government collecting $12.5 billion in tobacco taxes. Collectively, Massachusetts, Ohio, and West Virginia allocated only $17.2 million in state funding towards tobacco control programs in 2019, with West Virginia diverting $0 in state funds. Combined, these states collected more than $1.5 billion in cigarette taxes and $594 million in tobacco settlement payments.
Deeply problematic are the effects of such a tax on low-income persons, the same group that Democrats purport to care about. Low-income Americans disproportionately smoke at greater rates than their high-income counterparts. For example, in Ohio and West Virginia, 67.9 percent and 74.2 percent of current adult smokers reported earning $24,999 or less in 2019. In Massachusetts, only 46 percent of smokers reported such incomes.
This is just the latest in the Democrats’ attempts to generate revenue for their programs and attempt to adhere to Biden’s promise of not raising taxes, but it’s all smoke and mirrors. Cigarette taxes are highly regressive and any increase to the federal tax rate is an about-face as it will be a direct tax increase on persons earning way under $400,000.
Moreover, Senate Democrats should examine the proposal to see if it will be their own constituents who end up footing more of Washington’s outlandish spending spree.
