After four days of debate and amendment votes, Democrats on the House Ways and Means Committee are on track to approve their portion of the $3.5 trillion tax-and-spend reconciliation bill. As NTU wrote to the Committee prior to the three-day markup, this colossal legislation “consists of significant and, in the aggregate, unprecedented tax increases that would harm American workers and businesses and could stunt America’s economic recovery from the COVID-19 pandemic.” All taxpayers should be concerned with the unyielding desire by the majority party to increase tax burdens on American businesses and taxpayers.
While there is no shortage of subject matter to take issue with in the Ways and Means Committee bill, one of the more harmful provisions is the tax increase on tobacco, nicotine, and vapor products. Though the tax is levied at the producer level, the effect of this tax will ultimately be passed along to consumers who will see a substantial increase in their overall tax burden. This additional burden on taxpayers would violate President Biden’s pledge of opposing “any tax increases on people making less than $400,000 a year.” Further, this isn’t just a small drop in the bucket. The Joint Committee on Taxation calculates the tobacco and nicotine tax would increase tax collections by $96 billion over the ten year budget window allowed by reconciliation rules.
According to the Section 138504 of the bill, the majority expects $96 billion in additional revenue by doubling the excise tax rate on cigarettes, cigars, and roll-your-own tobacco, from $55.33 to $100.66. Further, it also increases rates on all other tobacco, nicotine, and tobacco-harm reduction products to match the tax rate on cigarettes. If these rates are finalized, the tax rate on a 20-pack of cigarettes would double to $2.02 per pack and astoundingly, the rate on chewing tobacco would increase by 2,000 percent and pipe tobacco by 1,600 percent.
Perhaps most concerning is how the Committee's bill deals with vapor products, which would be subject to a tax rate of $100.66 per 1,810 mg of nicotine. As it stands there is no federal tax rate on vapor products, and would therefore impose a brand new tax on these products. This rate would, for some reason, match that of traditional cigarettes despite being significantly less harmful. This provision is not backed by any health policy evidence. These tax rates should be set at reasonable levels that are commensurate with their level of harm, rather than simply used to generate revenue.
Tobacco-harm reduction products are an effective cigarette cessation tool for smokers who want to quit their habit. A landmark 2019 New England Journal of Medicine study documents that smoking cessation is two times more likely to occur in those who used e-cigarettes as compared to individuals using other nicotine replacement products. Additionally, there is a consensus in the United Kingdom among academics, scientists, and the medical community that reduced-risk tobacco alternatives such as vaping e-cigarettes are significantly less harmful than smoking combustible cigarettes. According to research by Public Health England and the Royal College of Physicians, vaping is up to 95 percent less harmful than combustible tobacco use. Moreover, Public Health England recommends smokers switch to vaping, and the American Cancer Society concludes that, based on current available information, vaping is less harmful than smoking.
The percentage of American cigarette smokers has dropped by almost half just in the last twenty-five years, falling from 25 percent of adults down to 13.7 percent, according to the American Lung Association. This is good news, as hundreds of thousands of annual deaths can be attributed to cigarette smoking and millions more Americans also deal with deadly diseases associated with cigarette use. It’s evident in statistics that the decline in smoking cigarettes correlates with a sharp increase in the uptake of vapor and other tobacco-harm reduction products.
The science backs up the fact that e-cigarette and vapor products are significantly less harmful than traditional cigarettes, therefore it makes little sense to have an equal tax rate for both categories of product. Aside from ensuring a product’s tax rate is commensurate with its level of individual risk, a poorly-thought-out tax increase could have damaging effects on the economy. As American businesses and taxpayers emerge from the health and economic crisis of the last year, it would be extremely unwise to raise taxes. Greater tax burdens, given the fragile state of the economy, will jeopardize the jobs recovery as we dig out of the hole caused by the COVID-19 pandemic. Increased tax rates on job creators, individuals, or consumers are always a precarious endeavor, but one in the midst of an economic recovery could threaten our economic vitality in the years to come.
Tobacco taxes are highly regressive and disproportionately harmful to working-class Americans. By raising taxes, policymakers fund a growing black market for cigarettes. Since tax isn’t collected on cigarettes on the black market, all levels of government will lose out on revenue that they would have otherwise collected if the tax rate was lower.
With the Committee’s approval of their $3.5 trillion tax-and-spend monstrosity, Congressional Democrats are one step closer to getting it to the president’s desk. The tobacco and nicotine provisions of this legislation are bad tax and health policy. Lawmakers would be wise to keep such an irresponsible policy as far from the president’s desk as possible.