Obama Seeks to Raise Cigarette and Tobacco Taxes a Second Time

Thomas A. Briant, NATO Executive Director

Just four years ago in 2009, President Obama signed into law the single largest increase in the federal cigarette and tobacco tax rates in the history of the country. At that time, the federal cigarette tax was increased from 39 cents to $1.01 per pack and numerous federal taxes on roll your own tobacco, cigars, smokeless tobacco and pipe tobacco were also raised.

According to a 2012 Federal Trade Commission (FTC) report on cigarette sales in 2009 and 2010, cigarette sales declined 10% nationwide in 2009, the year the federal tax increase went into effect, followed by another 3% decrease in cigarette sales in 2010 (see accompanying FTC report).

Last Friday, the Obama administration announced that a second round of federal cigarette and tobacco tax increases are being proposed to fund the expansion of preschool programs nationwide for four year olds from low to moderate income families. The actual tax rate increases will be released today when the President's budget is delivered to Congress.

It is ironic, however, that the President's proposal would seek to increase cigarette and tobacco taxes that fall more heavily on lower income Americans who have higher smoking rates to fund expanded access to preschool programs for all four-year-old children from families with low to moderate incomes. In fact, the Centers for Disease Control and Prevention (CDC) reports that 29% of all smokers have incomes below the federal poverty level.

This latest proposed increase in the federal cigarette and tobacco tax rates will, if passed into law, impact all retailers that sell tobacco products. From specialty tobacco stores that sell primarily tobacco and tobacco-related products, to convenience stores and service stations, to grocery stores and liquor stores, a higher tax environment will have an impact on sales and jobs.

NATO will continue to monitor and report on the proposed federal cigarette and tobacco tax increases and assist retailers in responding to the threat of higher federal tax rates.