In an effort to fund their ambitious $3.5 trillion infrastructure bill, Democrats and the Biden administration have taken aim at smokers.
Sen. Joe Manchin (D-W.Va.) and others have balked at the bill’s price tag, and moderates in Congress are pressuring the administration to find funding. One of the revenue sources proposed by the Biden administration is to raise the excise tax on tobacco. Texans should see this tax increase for what it is: a sin tax on low-income residents that would do little to help the state’s budget. Here’s why.
Biden is looking to double the federal tobacco tax to raise nearly $100 billion. That would affect every city, county, and state in the U.S., but it would hit Texas particularly hard. Nearly 15 percent of Texans smoke, which means cigarette surcharges touch 1 out of every 7 people in the state. Those taxes are a significant source of revenue for the state, generating about 3 percent of all taxes collected. Any change in the way nicotine is taxed will affect a lot of Texans’ wallets, and data on tobacco users shows that smokers across the country are typically poor or middle class. This is why tobacco excise taxes have been called “probably the most regressive tax out there.”
Regressive tobacco taxes hurt poor Texans every day. According to The Tax Foundation, Texans in the bottom quintile have an effective tobacco tax rate of over 10 percent. In contrast, the top 5 percent of earners have an effective tax rate of just 0.3 percent.
Taxing poor people’s consumption has a doubly damaging effect. Not only does it mean that working-class people pay the most money, but it also means what they pay makes up a larger portion of their budget. Take, for example, a smoker who makes less than $30,000 a year. On average, these people spend 14 percent of their budget on cigarettes alone. Doubling the cigarette tax would cause an immediate and significant increase in their annual cost of living.
Extracting money from poor people to pay for a progressive $3.5 trillion wishlist is not the morally right thing to do. In this instance, it also isn’t a good idea financially, either.
Currently, Texas levies $1.41 in taxes onto every pack of cigarettes sold in the state. Paradoxically, if the tobacco tax were raised by just a dollar, projections indicate that Texas would lose over $55 million in government revenue. Higher tobacco taxes wouldn’t lead to higher revenue because high prices incentivize drug smuggling.
Tobacco smuggling isn’t often discussed, but it’s a lucrative market for drug dealers. In New York, for instance, over half of all cigarettes consumed are smuggled and sold illegally. That makes sense when you realize New York City has some of the steepest tobacco taxes in the country. When taxes are high, there’s more profit for smugglers and a greater incentive for smokers to buy illegal cigs.
Texas’ current smuggling rate is probably higher than you think. Almost a quarter of all cigarettes in the state, 23.49 percent to be exact, are sold illegally. Tobacco smuggling is already big business and will only get bigger if the administration doubles the tobacco tax.
Newsflash: Smoking is addictive. Smokers aren’t going to stop smoking because cigarettes cost a few more dollars. Instead, those that can afford the tax will pay it, while poorer smokers will turn to drug dealers to supply tobacco products.
The Biden administration wants to make addicted smokers pay extra for tobacco to help fund his infrastructure plan. Not only is that kind of thinking morally bankrupt, but the administration’s goal to have tobacco taxes support a national infrastructure spending package is laughably ineffective. Instead of trying to extract more money from low-income smokers, the administration should narrow the bill’s focus and find other sources of revenue. Texans should firmly reject this kind of federal government meddling.