The decline in smoking rates would also lead to improvements in health and an increase in longevity. The estimate incorporates that reduction. Increasing the tax on tobacco would contribute to a decline in smoking rates, which would reduce the amount of excise taxes raised by the option. The estimates for the option reflect that income and payroll tax offset. The resulting reduction in income and payroll tax receipts would partially offset the increase in excise taxes. The higher excise tax would reduce taxable business and individual income. The decrease in outlays would mainly result from reduced spending for Medicaid and Medicare. Effects on the BudgetĬBO and the staff of the Joint Committee on Taxation estimate that the option would reduce deficits by $42 billion from 2019 to 2028: Revenues would rise by $41 billion, and outlays would decline by almost $1 billion. As a result, the federal tax on cigarettes would increase to about $1.51 per pack in that year.
In addition to those changes, the option would raise the federal excise tax on all tobacco products by 50 percent beginning in 2019. It would also set a minimum tax rate on large cigars equal to the tax rate on cigarettes. It would raise the tax on pipe tobacco to equal that for roll-your-own tobacco-from $2.83 to $24.78 per pound. This option would make several changes to the federal excise taxes on tobacco products. It is estimated that about 16 percent of adults are currently smokers, but the Congressional Budget Office projects that tobacco consumption will decline over the next decade, causing receipts to fall by about 2 percent per year over that time.
Pipe and roll-your-own tobacco are taxed at $2.83 and $24.78 per pound, respectively.Ĭollections from federal taxes on tobacco products totaled $14 billion in 2017. Large cigars are taxed at 52.75 percent of the manufacturer's sales price, with a maximum tax of 40.26 cents per cigar. Other tobacco products are also taxed, including cigars, pipe tobacco, and roll-your-own tobacco. Together, those federal and state taxes and fees total $3.36 per pack of cigarettes, on average. In addition, settlements that the major tobacco manufacturers reached with state attorneys general in 1998 require the manufacturers to pay about 60 cents per pack in fees. In 2018, the federal excise tax on cigarettes was just under $1.01 per pack, and the average state excise tax on cigarettes was $1.75 per pack. Both the federal government and state governments tax tobacco products.