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1 1 (October 6, 2021)

handle is hein.crs/goveepu0001 and id is 1 raw text is: Congressional Research Service Inforrming the legislative debate since 1914 0 October 6, 2021 Proposed Tobacco Excise Tax Changes in H.R. 5376, the Reconciliation Bill Federal tobacco excise taxes are a continuing interest for many in Congress seeking to improve public health and to raise revenue. Today, the tobacco tax is one of the largest federal excise taxes. In FY2020, it raised $12.4 billion for the General Fund. A range of tobacco tax increases are included in H.R. 5376, commonly known as the reconciliation bill. In addition to increasing most of the currently existing tobacco tax rates, H.R. 5376 would levy a tax on other products containing nicotine, such as e-cigarettes. The Joint Committee on Taxation estimates that the proposed tobacco tax increases would raise $96.8 billion from FY2022 to FY2031. Economic research suggests that a tobacco tax increase is an effective way to decrease consumption of tobacco products. At the same time, a tobacco tax increase would most likely be regressive, meaning that people with lower incomes would pay a higher share of their income in tax than people with higher incomes. This is largely because people with lower incomes are more likely to consume tobacco products. Also, a federal tax increase would likely reduce the revenue that state and local governments receive from their own tobacco taxes, due to reduced demand. Comparing Current Law with Proposed Changes The current federal excise tax rates on tobacco products took effect in April 2009. Tobacco excise taxes were increased as a pay-for in the Children's Health Insurance Program Reauthorization Act of 2009 (P.L. 111-3). Current tobacco taxes cover a variety of tobacco products, with covered products defined in 26 U.S.C. §5702. This section includes definitions for cigarettes, cigars, smokeless tobacco (including snuff and chewing tobacco), pipe tobacco, and roll-your-own tobacco. H.R. 5376 would increase the tax rates applicable to each of these tobacco products. Table 1 compares the current-law tax rates with the proposed changes in H.R. 5376. Taxes on small and large cigarettes and small cigars would double. For example, taxes on small cigarettes would increase from $50.33 per 1,000 cigarettes ($1.01 per pack of 20) to $100.66 per 1,000 cigarettes ($2.01 per pack of 20). Large cigars would be taxed differently under H.R. 5376. Currently, a large cigar is subject to a 52.75% sales tax, not to exceed $0.4026 per cigar. H.R. 5376 changes the rate to $49.56 per pound, and not less than $0.1006 per cigar. For example, a 5 gram cigar would have $0.5463 in taxes. Table I. Federal Tobacco Excise Tax Rates: Current Law and H.R. 5376 Type of Product Current Law H.R. 5376 Small $50.33 per 1,000 $100.66 per 1,000 cigarettes ($1.01 per pack of 20) ($2.01 per pack of 20) Large $105.69 per 1,000 $21 1.39 per 1,000 cigarettes ($2.11 per pack of 20) ($4.22 per pack of 20) Small cigars $50.33 per 1,000 $100.66 per 1,000 ($1.01 per pack of 20) ($2.01 per pack of 20) Large cigars 52.75% of sales price $49.56 per pound, but but not to exceed not less than $0.1006 $0.4026 per cigar per cigar Pipe tobacco $2.831 I per pound $49.56 per pound Chewing $0.5033 per pound $10.70 per pound tobacco Snuff $1.51 per pound $26.84 per pound Roll-your- $24.78 per pound $49.56 per pound own tobacco Cigarette $0.0315 per 50 $0.0315 per 50 papers Cigarette $0.0630 per 50 $0.0630 per 50 tubes Discrete Not taxed unless snuff $100 per 1,000 single-use or chewing tobacco u n itsa Other Not taxed $100.66c per 1,810 nicotine milligrams of nicotine productsb Source: Table created by CRS. Current law from 26 U.S.C. §5701. H.R. 5376, To Provide for Reconciliation Pursuant to Title II of S.Con.Res. 14, from the version reported in the U.S. House of Representatives on Sept. 27, 2021. a. Snuff or roll-your-own tobacco products would be taxed as discrete single-use units instead if they meet that definition. b. Tobacco products meeting the definition of one of the other taxable classes (e.g., a large cigar) would be taxed at that rate, without regard to the nicotine content. C. This rate would be statutorily tied to the tax rate on small cigarettes. H.R. 5376 would tax discrete single-use units, defined as a product that is not intended to be smoked and is in the form of a lozenge, tablet, pill, pouch, dissolvable strip, or other ittps://trsreports.congress.gt

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