Largest Federal Cigarette and Tobacco Tax Increase in History

The proposal unveiled by the President today nearly doubles the current federal cigarette tax from $1.01 per pack to $1.95 per pack, increases taxes on other tobacco products such as cigars, roll-your-own tobacco, pipe tobacco and smokeless tobacco about the same proportion and indexes the taxes for inflation after 2014.

“With cigarette sales declining year to year, the stability of this funding source is unreliable and therefore will likely not produce the $78 billion dollars the President needs to fund the preschool education program over the next decade. If pre-school education is important to the President, a better, more stable source of funding should be identified because the country can no longer depend on tobacco taxes to solve the country’s problems,” said Briant.

Four years ago in 2009, President Obama signed into law what was then the single-largest increase in the federal cigarette and tobacco tax rates in the history of America. At that time, the federal cigarette tax was increased by $.62 per pack from $.39 to $1.01 per pack. According to a 2012 Federal Trade Commission report on cigarette sales in 2009 and 2010, cigarette sales declined 10 percent nationwide in 2009, the year the federal tax increase went into effect, followed by another 3 percent decrease in cigarette sales in 2010. Based on the historical cigarette sales decline in 2009 and 2010, the new higher tax increase on cigarettes announced today could result in even larger declines in cigarette sales.

These proposed increases in the cigarette and tobacco tax rates will, if passed into law, seriously impact retailers that sell tobacco products, said Briant. “For specialty tobacco stores that sell primarily tobacco and tobacco-related products, a sales decline greater than what occurred in 2009 to 2010 would be destructive to their businesses and result in store closures and employees losing their jobs. For convenience stores that rely on 35 to 40 percent of their in-store sales from tobacco products, these higher taxes would also spell sales losses and job curtailment,” Briant said.

NATO is the National Association of Tobacco Outlets, a national retail trade association that focuses exclusively on local, state and federal tobacco legislation.