Millions of Americans who smoke could soon see an increase in their prices, as Democrats target tobacco and nicotine to help finance their $3.5 trillion economic package.
The new proposal put forward in the House this week would raise or impose taxes on a wide array of products: It would hike existing federal levies on cigarettes and cigars while introducing new taxes on vaping. Democrats say the changes could help them raise $100 billion in revenue over the next 10 years.
Health experts and activists have heralded Democrats’ efforts, arguing that higher taxes on tobacco could help crack down on a dangerous, deadly habit
among a nation of roughly 34 million cigarette smokers. The Campaign for Tobacco-Free Kids this week estimated the increases could reduce the total number of smokers by 1.1 million in the first year after the law is adopted, while deterring over half-a-million kids from becoming addicted.
But the ideas still have brought fresh criticism, particularly from Republicans, who also oppose the broader thrust of President Biden’s economic agenda. Tobacco excise taxes are assessed on companies, which generally pass the expenses to consumers in the form of price increases. To GOP lawmakers, the higher taxes put Democrats at risk of violating Biden’s promise during the 2020 campaign not to raise rates on Americans who make less than $400,000 each year.
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The heaviest users of cigarettes and other tobacco products tend to be middle-income or lower-income Americans, federal data shows. As many as 80 percent of smokers have incomes less than $200,000 annually, according to data presented to the House Ways and Means Committee, the tax-focused panel that debated the idea on Tuesday. Other federal data shows that the greatest number of smokers are those who make at or below poverty-level wages.
But Democrats have argued their efforts do not violate Biden’s pledge. A White House official, speaking on condition of anonymity to describe the administration’s thinking, said smoking is not a required cost for working families and the introduction of higher taxes would not directly affect their incomes. The aide also highlighted the public health imperative behind the idea, given the well-known dangers of a practice they are trying to discourage.
Asked if the new proposal runs afoul of the president's past promise, Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, responded: “Absolutely, no question.”
But, he cautioned, it does not mean it is bad policy. “It clearly is a tax increase, and it clearly has benefits,” Gleckman said.
For now, the mere proposal itself reflects the all-out scramble on Capitol Hill as Democrats scrounge for any money they can find to cover the costs of their new spending ambitions. At no point this year had Biden or his congressional allies publicly embraced higher tobacco taxes, even as they pursued new spending to rethink federal health care, education and safety-net programs.
Democrats hope to raise most of the required revenue from a slew of
additional tax increases, including higher rates on wealthy Americans, profitable corporations and investors. The party’s House lawmakers have debated the ideas in recent days as they race to complete work on their sprawling $3.5 trillion package by Wednesday.
The little-noticed tobacco taxes aroused discussion a day before that deadline, as the House Ways and Means Committee continued its marathon stretch of legislative sessions to write the fuller bill. The proposal put forward by the panel’s chairman, Rep. Richard E. Neal (D-Mass.), aims to increase rates using a complicated set of calculations based on the type of tobacco product, its sale weight or total nicotine content.
For cigarettes in particular, the tax increases could ultimately result in smokers paying about $1 more per pack, according to Ulrik Boesen, a senior policy analyst tracking excise taxes for the Tax Foundation. He said it is harder to track the exact effect on vaping since it may vary considerably based on a company’s products, their potency and how it chooses to pass any added expense onto purchasers.
For some Americans, though, the added expenses could total hundreds of dollars annually. Boesen said that could fall hardest on Americans at the lower end of the economic spectrum, pointing to data compiled by the Centers for Disease Control and Prevention that indicates that 1 in 5 adults making less than $35,000 a year are smokers.
The U.S. government last raised federal excise rates on tobacco in 2009, though state legislators in the meantime have layered on their own additional taxes targeting these products. Matthew Myers, the president of the Campaign for Tobacco-Free Kids, said the increases historically have served their intended purposes, deterring people from smoking while reducing health care costs.
The group said this week that Democrats’ plan also could make a marked difference at a time when e-cigarettes, which are untaxed at the federal level, are increasingly on the rise among millions of younger Americans — so the new taxes could further deter their use as well. The Food and Drug Administration recently cracked down on the industry as it continues to review whether one company, Juul Labs,
can sell its products in the United States.
The tobacco tax hike belongs to an even wider array of potential increases in Democrats’ broader $3.5 trillion plan that seek to incentivize or discourage behavior. The still-forming spending bill uses a mix of tax credits and payments to try to reduce carbon emissions, for example, and to keep companies from offshoring jobs and profits. And it similarly dangles tax breaks in front of Americans who purchase new or used vehicles and bicycles that are energy-efficient and environmentally friendly.
But the tobacco tax still seemed to conflict with the president’s pledge, even as its foremost supporters said it should not matter given its long-term benefits. That prompted Republicans to tee off on the idea Tuesday. Rep. Drew Ferguson (R-Ga.), a member of the Ways and Means Committee, at one point faulted Democrats for striking the wrong balance — seeking tax increases on tobacco that could hurt lower-income Americans, while supporting tax breaks for wealthier families who can buy electric cars.
“We’ve got folks making less [and] paying more taxes, and folks making a lot are getting a tax break,” he said.
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