Update on Obama’s Plan to Fund Pre-K with Tobacco Taxes

Thomas A. Briant, NATO Executive Director

In April, President Obama announced a proposal to increase the federal cigarette tax by 94 cents per pack and raise all other tobacco tax rates by a similar proportion to fund an expansion of preschool for four year olds. This initiative to expand pre-K education is a part of the President’s 2014 Fiscal Year budget, which includes $75 billion over a 10-year period in new tax revenue from cigarette and tobacco tax rate increases to fund the program.

While Congress has not acted on either the pre-K proposal or the President’s proposed budget, Secretary of Education Arne Duncan has visited or will be traveling to eight states in an effort to promote the program. Recently, Secretary Duncan has traveled to Georgia, Michigan, Minnesota and Virginia with plans to visit Alabama, Kentucky, Missouri and Ohio as well.

In the U.S. House of Representatives, there is serious opposition to raising the cigarette and tobacco product taxes to fund the pre-K proposal. In a story published in the Washington Post, U.S. Representative John Kline (R-Minn.), who serves as the chairman of the House Committee on Education and the Workforce, is quoted as saying “There is no chance of a tobacco tax to pass.”

NATO is acutely aware that such a large increase in the federal cigarette and tobacco tax rates would have serious negative consequences for tobacco retailers across the country. According to a 2012 Federal Trade Commission report on cigarette sales in 2009 and 2010, cigarette sales declined 10% nationwide in 2009, the year that President Obama signed into law a 62 cents per pack increase in the federal cigarette along with substantial increases in other tobacco product tax rates.  This was followed by another 3% decrease in cigarette sales in 2010. Based on the historical cigarette sales decline in 2009 and 2010, if the President’s proposed cigarette and tobacco tax increases to fund pre-K expansion were enacted into law, even larger declines in cigarette sales could result along with similar reductions in tobacco product sales.

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% of their in-store sales from tobacco products, these higher taxes would also spell sales losses and job curtailment. NATO and its retail members have been active in reaching out to U.S. Senators and Representatives to oppose the President’s plan to raise cigarette and tobacco taxes.