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1 Ulrik Boesen, Analysis of Federal Proposal to Increase Tobacco and Nicotine Products Taxes 1 (2021)

handle is hein.taxfoundation/asoflpltie0001 and id is 1 raw text is: Analysis of Federal Proposal to Increase Tobacco and Nicotine Products Taxes FISCAL FACT No. 777 Aug. 2021 Ulrik Boesen Senior Policy Analyst, Excise Tax Key Findings The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and global levels We are a 501(c)(3) nonprofit organization. ©2021 Tax Foundation Distributed under Creative Commons CC-BY-NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 The Tobacco Tax Equity Act would double taxes on cigarettes and equalize rates on all other tobacco and nicotine products to match the new higher cigarette rate. The increase would result in substantial increases on chewing tobacco (2,034 percent), pipe tobacco (1,651 percent), and snuff (over 1,677 percent). Vapor products, which are not currently taxed at the federal level, would also be taxed at the level of cigarettes. The increase could raise$112 billion over the 10-year budget window, but a large portion of the new tax burden would fall on low-income Americans, as consumption of tobacco is more common in this group. Moreover, the tax base is increasingly narrow given the decades long decline in tobacco consumption. Tobacco products are taxed at multiple levels and with several levies. As a result of the federal increase, a pack-a-day smoker in New York state making$15,000 a year will pay almost 20 percent of his income in taxes on tobacco consumption. This cannot be reconciled with President Biden's pledge not to increase taxes on those earning less than$400,000. States stand to lose around$689 million in revenue from excise taxes on tobacco products due to the tax increase's impact on consumption. Tax pyramiding will result in steep price increases in states with ad valorem (price-based) taxes on tobacco products, as federal increases are multiplied by the state level tax. Significant price increases can exacerbate issues with illicit trade. Tax parity between the most harmful tobacco products and least harmful nicotine products would hurt smokers' ability to switch from cigarettes, which is a problem for public health. 202.464.6200 taxfoundation.org

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