States weigh tobacco and nicotine tax hikes

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With the 2026 state legislative session in full swing, a principal focus this year remains excise taxation on cigarettes, vapes, nicotine pouches and other tobacco products. Many budget-strapped states are looking to excise taxes for revenue, while policymakers in some states are looking to capture new revenue from new product formats such as nicotine pouches.

Lawmakers have already introduced bills in 20 states aimed at extending tobacco tax systems to cover newer nicotine categories or increase existing rates. Several states are facing particularly aggressive tax proposals that could dramatically raise the cost of nicotine products. In New York, Governor Kathy Hochul has proposed extending a 75% tobacco wholesale tax to include nicotine pouches to bolster declining tobacco tax revenue. Washington is considering increasing the state cigarette tax by $2 as well as increasing taxes on other nicotine products. Nebraska is holding hearings on tobacco product tax increases after the legislature approved a tax on nicotine pouches last year.

While supporters argue that higher taxes reduce smoking and generate funds for important programs, tobacco taxes often create economic distortions, unintended consequences and inequities that make them a flawed public policy.

• Higher taxes will make supplying and selling illicit tobacco products, activity that is already commonplace, even more lucrative. This includes both casual smuggling (individuals buying cheaper cigarettes across state lines) and commercial smuggling (larger shipments resold illegally). Tax increases embolden cross-border purchases by illegal sellers, who do not care if they sell to underage people nor harm responsible retailers. 
• Implementing new taxes on vaping products and nicotine pouches is contrary to public health. To date, the Food and Drug Administration (FDA) has approved 87 products under its Premarket Tobacco Application (PMTA) process. Those products were found, after rigorous scientific analysis, to be “appropriate for the protection of the public health.” Among those products are 39 e-cigarette products and 26 nicotine pouches. Why would any state enact a new tax that would discourage adoption of these products found to be in the interest of public health?
• Retailers include tobacco-only stores, with virtually all revenue from tobacco sales, and convenience stores, with approximately 30% of in-store revenue from tobacco products. The lost sales because of tax disparities may force tobacco-only stores to close and make the convenience store business model untenable, causing layoffs or closures, and drive up the prices on non-tobacco items.
• Youth usage of tobacco and nicotine products is low and has been declining. Recent data from the 2024 National Youth Tobacco Survey showed that youth usage of e-cigarettes has reduced substantially. By way of background, the FDA and the Centers for Disease Control (CDC) conduct an annual survey on youth tobacco use. The 2024 survey was compiled from over 29,000 students from 283 schools across the country. According to a CDC and FDA analysis of data from the 2024 survey, e-cigarette use among middle and high school students declined from 7.7% to 5.9%. Overall, youth e-cigarette use has declined nearly 70% since its peak in 2019. Similarly, nicotine pouch youth usage is low at 1.8% and cigarettes are at 1.4%, which represents a historic all-time low.
• An excise tax is a regressive tax that impacts lower income residents. According to a 2024 poll by Gallup, nationally 11% of adults smoked, an 80-year low. It also found that “as annual household income increased, the percent currently smoking decreased. Approximately 26.5% of adults with incomes below $15,000 reported current smoking (down from 37% in 2022), compared to 7.2% of adults with household incomes greater than or equal to $100,000.” 

Over the next few months, states will ultimately decide on these attempts to increase tobacco and nicotine product taxes. At a time when youth tobacco use is falling, FDA-authorized alternatives are available, and adult smoking rates have reached historic lows, state lawmakers should pause before turning to excise tax hikes as a default solution to budget challenges.

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