Tobacco Taxes Target the Poor. Burn 'Em.
Not many people would support a tax they knew would only affect poor and middle class Americans. Even fewer would call that tax “equitable.” Nevertheless, Congressional Democrats are looking to increase a tax known to disproportionately hurt the poor and people of color.
Americans making under $400,000 pay the vast majority of the tobacco taxes in this country, but Democrats in Washington are still pushing new taxes that would double the price of tobacco products. The Biden administration is looking to increase the tobacco tax. While tobacco taxes are most often intended to stop people from smoking, Biden has ulterior motives: He needs the money to fund his ambitious $3.5 trillion spending proposal. But increasing tax revenue like this amounts to nothing less than extortion of the middle and lower classes. It must be rejected.
Tobacco taxes are classified as excise taxes, meaning they’re levied when a product is manufactured, not when it’s sold. For this reason, it’s easy for policy like the Tobacco Tax Equity Act to look like a win — we’re not taxing consumers, we’re taxing Big Tobacco. In reality, however, excise taxes function very similarly to sales tax. They both directly increase the price of the item, which passes the burden straight on to customers. When it comes to establishing excise taxes, then, the vital question to consider is who buys the product? Those are the folks who’ll pay nearly all of the tax.
A quick look at the demographics of tobacco users clearly shows that smokers are overwhelmingly poor and middle class people. Concerningly, smokers who make less than $30,000 per year spend 14 percent of their budget on cigarettes. In contrast, the top 1 percent of earners pay virtually none of their total income to the government through tobacco taxes.
Taxing tobacco will disproportionately affect poorer Americans. This has an unfortunate double effect: Working class people bear the highest total tax burden, and the tax has a proportionally greater effect on their budgets.
Direct taxes are still important, even if they have a moderately regressive effect. However, most states try to mitigate the regressive effects of sales and excise taxes by exempting them from items that make up a large percentage of a low-income person’s budget. When it comes to tobacco products, though, the system appears completely reversed. Rather than decreasing the tobacco tax burden, the Biden administration is looking to double it.
The real reason tobacco excise taxes are so high is because they are “sin taxes.” “Sin taxes” are surcharges imposed by the government on items like cigarettes that are deemed to be bad for society. The rationale behind “sin taxes” is that the increase in price will help to deter people from buying them, which will lead to better societal outcomes. While the basic idea may be compassionate, the effect in this case is quite pernicious.
The unfortunate reality of the situation is that the vast majority of cigarette smokers are addicted. Charging poor and middle class people a few extra dollars for a pack of cigs isn’t going to provoke a seismic shift away from smoking. It is far more likely that everyday Americans will simply pay the extra money for the tobacco products they are addicted to, and thus become functionally poorer.
Furthermore, if tobacco prices become too high, the market for illicit cigarettes will become more attractive for smokers who don’t want to fork over extra money to the government. While politicians don’t talk about it often, the illicit tobacco trade is big business. It should not be surprising that cigarette smuggling is especially rampant in states and cities that have excessive taxes on tobacco products.
In New York, which has some of the most onerous tobacco tax laws in the country, 53 percent of all cigarettes consumed are smuggled in and sold illegally. Incentivizing smuggling operations not only hurts smokers but it also depresses the very tax revenue the government is trying to generate.
President Biden has consistently told the American people that he won’t raise taxes on Americans making less than $400,000 per year. If the current Administration wants to make good on that promise, they should revise and reject the initiative to raise excise taxes on tobacco products. Implementing such a regressive tax would only hurt vulnerable Americans and serve to line the pockets of future illegal tobacco dealers.
Sean-Michael Pigeon is a contributor to Young Voices. He recently graduated from Yale University and his work has been featured in USA Today, National Review, The Washington Examiner, and more.