House Dems Propose $100 Billion Tax Hike Targeting The Poor

$3.5 trillion spending bill hits American tobacco users and those trying to quit

Patrick Hauf • September 29, 2021 5:00 am

The Democrats’ $3.5 trillion budget proposal relies on a $100 billion tax hike that disproportionately targets the poor, lines the pockets of organized crime, and increases inequality.

The plan doubles the federal tax on cigarettes, which would break President Joe Biden’s promise to raise taxes only on those earning more than $400,000. Households with an income of $35,000 or less smoke at three times the rate of households with incomes of more than $100,000. Richard Marianos, a 27-year veteran of the Bureau of Alcohol, Tobacco, Firearms, and Explosives who worked on gang violence, said a tobacco tax increase will punish vulnerable communities.

“You’re punishing lower-income people, which the administration promised it wouldn’t do,” Marianos told the Washington Free Beacon. “You’re punishing the police departments that want to push towards reform. You’re punishing the states or organizations that truly have the tobacco harm reduction strategy to keep it out of the hands of kids and criminals. You cannot have a healthy community that is not safe.”

A tobacco tax hike would also put a dent in state economies that rely on tobacco production. Democratic Kentucky governor Andy Beshear, for example, told Biden last week that he opposes the proposed tax increases, which he said would cost the state $50 million in revenue.

The tax plan establishes the first-ever federal tax on vapor products, which have been consistently cited by medical experts as a safer smoking option than cigarettes. The proposal aims to raise $100 billion in government revenue by raising the tax rate on all tobacco and nicotine products to equal that of traditional cigarettes. It would increase taxes by 2,000 percent on chewing tobacco and 1,600 percent on pipe tobacco and snuff. Ulrik Boesen, a senior policy analyst at the Tax Foundation, said the Democratic proposal sacrifices low-income individuals’ and the overall public’s health for the sake of budget concerns.

“People of lower income are still consuming tobacco—it’s obviously not a financial decision—so I don’t think taxes are a good final solution to end cigarette smoking,” Boesen told the Free Beacon. “If you really want to get at the issue here, which is smoking cigarettes, you should be encouraging people to switch to less harmful products.”

A pack-a-day smoker who makes $35,000 would go from spending 4 percent to spending 5 percent of his income on cigarettes under the proposed tax plan, according to Boesen. This tax rate would be worse in the majority of states that set tobacco taxes on cumulative price of a product after federal taxes. Boesen noted that the plan may fail to reach its revenue goals in the long run as more consumers turn to the black market. More than half of cigarettes in New York City are smuggled, according to a study this year from the Tax Foundation in response to tax hikes on cigarettes.

Marianos said cigarettes have become the “new face of organized crime.” Local gangs have cigarettes imported from organized crime groups overseas then sell them on the streets. Gangs that prefer to do business on their own buy cigarettes in low tax areas then sell them in high tax areas for profit. Marianos said this could put local corner stores out of business, which rely heavily on tobacco sales—leaving no option for low-income smokers but gangs.

“When you can’t afford cigarettes, where do you go? You go to the black market. You go to the crooks,” he told the Free Beacon.

The nation’s largest tobacco companies oppose the tax plan, citing concerns with the equal tax rate on all tobacco and nicotine products. Philip Morris International, for example, has spent billions of dollars to develop iQOS, a smoking alternative that allows users to heat up, rather than burn, tobacco. The FDA in recent years approved iQOS as a reduced risk product because of its lower chemical levels, but the product could find itself facing the same tax hikes as the cigarettes it seeks to replace.

“Tax policy is a powerful tool for incentivizing consumer behavior and can help make innovations more accessible to adults who smoke across income levels,” Philip Morris spokesman Corey Henry told the Free Beacon. “We encourage governments to utilize this tool to accelerate switching to smoke-free products that are a better choice for adults who would otherwise continue smoking.”

Tobacco companies have increasingly poured money into products that are less harmful. RJ Reynolds owns Snus, a smoke-free form of dip that has been heralded for its relative safety compared with cigarettes. RJ Reynolds spokeswoman Kaelan Hollon said lawmakers could do more harm than good by making FDA-approved reduced risk products less affordable.

“Taxation should be based on the relative risk of products so that potentially less harmful products can compete more effectively with cigarettes, encouraging adult smokers uninterested in quitting to consider and choose lower-risk options,” Hollon told the Free Beacon.

Boesen and Marianos agreed that lower taxes on vapor products are in the best interest of public health. Marianos said the most effective and safe way to stop smoking is through education, which helps people make choices for themselves as opposed to financial pressure.

“Give them a choice, educate them, but don’t create a prohibition or increase taxes so they have to go to other means,” Marianos told the Free Beacon.