Obama 2015 Budget Repeats Proposal for Tobacco Tax Increase

Federal excise tax on cigarettes, OTP would go up

Thomas A. Briant, NATO Executive Director

President Obama
Yesterday, President Obama released his proposed fiscal-year 2015 federal budget that includes a 94 cents-per-pack increase in the federal cigarette tax rate and a proportionate 93% increase in all other tobacco tax rates. Each of these tax rates would be annually adjusted upward by an inflation index. The additional cigarette and OTP tax revenue would fund preschool education programs for four years olds in low income families. 
This is essentially the same proposal that the President included in his fiscal-year 2014 budget, which Congress did not pass. The President’s budget has been delivered to Congress for consideration by the U.S. House of Representatives and the U.S. Senate.
Under the 2015 budget proposal, the new tax rates for cigarettes and tobacco products would be as follows:
Cigarettes and Little Cigars:  $1.95 per pack
Chewing Tobacco:  97.13 cents per pound
Moist Snuff:  $2.91 per pound
Roll-Your-Own Tobacco:  $47.82 per pound
Pipe Tobacco:  $5.464 per pound
According to the White House Office of Management and Budget (OMB), the proposed cigarette and tobacco tax increases are estimated to raise $78 billion over the 10-year time period from 2014 through 2024. The budget estimate indicates that the cost of expanding preschool education to four-year olds from low-income families would be $76 billion over this same 10-year time period. 
The 10-year budget projection issued by the OMB, however, shows that the additional revenue raised by these higher cigarette and tobacco tax rates declines from a high of $10 billion extra dollars in fiscal-year 2016 to $7 billion extra revenue in fiscal-year 2024 while the cost of the preschool education program increases from $4 billion in fiscal-year 2016 to $11 billion in fiscal-year 2024. In other words, after the first 10 years, the cost of the program exceeds the additional cigarette and tobacco tax revenue to support the program.