Obama Proposes Cigarette Tax Increase

Budget proposal also includes “likely” OTP tax increase

By 
Thomas A. Briant, NATO Executive Director

President Obama

President Obama

MINNEAPOLIS -- This week, for a third consecutive year, President Obama released his proposed federal budget which includes a 94 cents per pack increase in the federal cigarette tax rate and a likely proportionate increase in all other tobacco tax rates. In addition, the budget proposal calls for annually indexing the cigarette and tobacco tax rates for inflation. This means that the tax rates would automatically increase each year based on the inflation rate.
 
The term “likely” is used in reference to the proposed tax increase on all other tobacco products (cigars, pipe tobacco, and smokeless tobacco) because while the President’s budget announcement and supporting budget spreadsheets reference an increase in all federal tobacco taxes, the only specific tax rate increase mentioned is the 94 cents per pack hike in the federal cigarette tax. Based on a 94 cents per pack increase in the cigarette tax, a proportionate increase for all other tobacco products would be a 93% increase in the applicable tax rates.
 
The projected $95 billion in extra excise tax revenue that would result from the proposed tax increases would need to include a proportionate increase in the federal excise tax on other tobacco products because a 94 cents per pack increase in the federal cigarette tax alone would not raise $95 billion over 10 years.  
 
The additional cigarette and OTP tax revenue would fund the extension of the federal Children’s Health Insurance Program for low-income children through 2019 (the program is scheduled to end in September of this year unless Congress authorizes more funding for the program). Also, the budget proposal would fund preschool education programs for four years olds from low-income families over a 10-year period. This is essentially the same cigarette and tobacco tax increase proposal that the President included in his Fiscal Year 2013 and 2014 budgets, neither of which Congress passed.  
 
Under the 2015 budget proposal, the new tax rates for cigarettes and little cigars, along with estimated tax rates for other 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