Sin taxes, those government levies on products or activities generally deemed as not good for us, typically are a favorite revenue raiser for states.
Now Uncle Sam, or at least Capitol Hill Democrats looking for ways to pay for their proposed $3.5 trillion economic package, are taking a page from their state tax counterparts.
One of the suggested taxes is a hike of the current federal excise tax on cigarettes and cigars. Another is a new tax on vaping.
The House Ways and Means Committee summary of the taxes says:
This provision doubles the current rate of excise taxes on cigarettes, small cigars, and roll-your-own tobacco. The provision changes the tax on large cigars from an ad valorem basis to a weight basis at the rate of $49.56 per pound, but not less than 10.06 cents per cigar. The provision provides larger increases in tax on smokeless tobacco (i.e., snuff, chewing tobacco, and pipe tobacco) and a new tax on discrete single-use units at the rate of $100 per thousand.
In real dollars, that's around a $2.25 per pod tax on vapor products and about a $2 tax on a pack of cigarettes.
The higher and/or new taxes on those who do inhale would bring the U.S. Treasury an estimated $100 billion over the next decade.
Support for the plan: Health experts and anti-smoking activists applaud the move.
The strongly supports the tobacco tax provisions included in the Build Back Better Act legislation proposed by the U.S. House Ways and Means Committee.
"Increasing federal tobacco taxes will greatly improve public health and save lives by preventing kids from starting to use tobacco products and encouraging current tobacco users to quit," said the Campaign for Tobacco-Free Kids in a statement supporting the House Ways and Means Committee bill.
The anti-smoking nonprofit also cited public health groups' argument that doubling the federal cigarette tax, as the legislation proposes, "will reduce the number of adult smokers by 1.1 million in the first year, prevent 507,000 kids alive today from becoming smokers, and save over 418,000 lives over time."
Opposition to the plan: While keeping more of us alive, especially children, generally is a universally shared goal (some COVID-19 actions, notwithstanding … but that's for another post), a few folks are a bit leery of the smoking and vaping taxes.
Congressional Republicans are not thrilled with the increased and new taxes.
Part of their opposition is purely political. The GOP is against President Joe Biden's overall policies and the ways that their Democratic colleagues want to implement and pay for them. Plus, the party has long been generally anti-tax.
But a few on the other side of the aisle also are a bit leery of the smoking and vaping taxes. They view the tax as a regressive one, since the excise additions likely would increase consumer prices, that would hurt lower income individuals.
Democratic political advisers also are concerned that the move could open up the party, and particularly vulnerable party members facing reelection fights, to charges of taxing not just the rich, but the decidedly less wealthy. And they are a bit hamstrung by Biden's 2020 campaign promise not to raise taxes on Americans who make less than $400,000 each year.
Economic, and voter, considerations: Many smokers and vapers make much less than six figures. Data presented to the Ways and Means members showed that as many as 80 percent of smokers have incomes less than $200,000 a year. In addition, other stats show the greatest number of smokers make at or below poverty-level wages.
"Today, at a national level, a pack-a-day-smoker making $15,000 a year pays almost 10 percent of their income in tobacco taxes (state and federal). The proposed increase takes that figure to 12 percent. For someone making $35,000 that’s 4.1 percent today and 5.2 percent after the tax increase. Of course, these are national averages, and there is significant variation from state to state," according to Ulrik Boesen, senior policy analyst, excise taxes, with the Tax Foundation.
A defeat for the prior administration: This isn't a new fight. Vapers led the way in defeating a 2019 policy move by Donald J. Trump.
Vaping aficionados, many in the income demographics cited by opponents to the new tax, forced Trump to back off his proposal to pull candy, fruit and mint vaping flavors off the shelves as a way to keep young people from taking up the habit.
As for the current plan, the Biden White House is treading as lightly as it can. It has noted that the excise tax is assessed on tobacco and vaping product manufacturers, not consumers directly.
But you can be sure that if the tax does make it into law, it will be touted during 2022 midterm (and beyond) election campaigns.
You also might find these items of interest:
- Some states tax at least some food items
- Sin taxes are lone revenue bright spot for many states
- Juuling tempts young e-cig smokers & state tax collectors