In the final days of the Biden Administration, the Food and Drug Administration submitted a proposed rule for review to the Office of Management and Budget (OMB) that would establish a maximum nicotine level in cigarettes and certain other combusted tobacco products. This proposed rule is a de facto prohibition on cigarettes and rife with unintended consequences, including that prohibition does not work and will result in the expansion of the existing illicit cigarette and tobacco product market that will increase criminal activity.
The National Association of Tobacco Outlets (NATO) commissioned a study with Chmura Economics to analyze the economic and fiscal impact of this proposed regulation from the perspective of tobacco retailers. It is based on existing data: revenue from cigarette and other tobacco products (OTP) sales (except cigars) exceed $90 billion annually, with much of this revenue flowing to governments, including federal, state, and local taxing authorities. The study measured the substantial economic impact on retail sales (tobacco products and ancillary sales), federal excise tax, state and local excise tax and sales tax revenue, jobs, and Master Settlement Agreement (MSA) payments to the states. The report also details how each state will be negatively impacted by the proposed FDA rule.
On a national level, using 2023 data, it is projected that tobacco retailers in the United States will lose $13.9 billion of revenue per year and 95,511 jobs in those retail establishments will be lost. Other industries related to retail will also be affected. Adding indirect and induced impacts, the national economy could lose $30.6 billion in economic output per year, with an estimated 154,478 jobs being lost. Federal, state and local governments will also be negatively impacted. The economic impact report estimates that federal excise tax on tobacco products will decline by $8 billion annually. In addition, tax revenue for state and local governments will decline by $16.0 billion per year. Moreover, payments to states via the MSA and payments to the other four states pursuant to separate settlements will decline by $5.6 billion, with a total revenue loss for state and local governments reaching $21.6 billion per year.
Before this proposed rule takes effect, it is required to follow a multi-year nine-step process. This involves proposing a new regulation, drafting the regulation, having the OMB review the proposed regulation, publishing the proposed regulation for public comment, the FDA reviewing and responding to all public comments, making any changes deemed necessary to the regulation, obtaining final OMB approval and publishing the final regulation with an effective date.
Throughout the regulatory process, NATO will be engaged will federal, state and local regulators, informing them of the unintended consequences of this proposal and sharing the findings of our economic impact report.
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