Personal Finance

House Democrats’ tax hike on tobacco, vaping may violate Biden’s pledge

Key Points
  • House Democrats have proposed a tax hike on tobacco and nicotine to help fund their $3.5 trillion spending plan.
  • Opponents say the measure may violate President Joe Biden's pledge not to raise taxes on Americans making less than $400,000 per year.
  • The tax may bring in more than $96 billion over the next decade, but it may be a "risky" source of revenue, policy experts say.
A man smokes with the electronic tobacco heater IQOS (I quit ordinary smoking) of the tobacco company Philip Morris.
Sebastian Kahnert | picture alliance | Getty Images

House Democrats have proposed a tax hike on tobacco and nicotine products to help fund their $3.5 trillion spending plan. 

The measure may increase current levies on cigarettes, cigars and roll-your-own and smokeless tobacco, according to a plan summary. They have also proposed new taxes on vaping products.

Companies typically pass so-called excise taxes — levies on specific goods such as alcohol, gasoline, soda and tobacco — along to customers with higher prices.

These tax increases may bring in more than $96 billion in revenue over the next decade, according to estimates from the nonpartisan Joint Committee on Taxation.  

While health advocates applaud the plan, opponents say it violates President Joe Biden's promise not to raise taxes on Americans making less than $400,000 per year. 

"A tobacco tax is probably the most regressive tax out there," said Ulrik Boesen, senior policy analyst of excise taxes at the Tax Foundation. "There's no question that it's a tax on people earning less than $400,000."

The White House did not immediately respond to CNBC's request for comment.

More from Personal Finance:
House Democrats' plan would close tax loophole used by crypto investors
IRS extends tax relief for Hurricane Ida victims in New York, New Jersey
House Democrats propose top 39.6% tax rate at these income levels

Americans living below the poverty line have higher smoking rates than the general population, according to the Centers for Disease Control and Prevention. These individuals may smoke for twice as many years as those making triple that level of income.

One of the proposals, doubling the cigarette tax, may cost someone smoking a pack per day an extra $400 per year, depending on where they live, Boesen estimates. 

However, there may be greater issues with the proposed tax hikes, as Boesen detailed in a Tax Foundation analysis.  

"We're talking about $100 billion levied from a fairly narrow section of the market — just tobacco nicotine products," he said. "That's kind of risky to rely on that revenue long-term because every year there are fewer and fewer smokers."

The Food and Drug Administration has proposed a ban on menthol cigarettes, suggesting it may prompt 923,000 U.S. smokers to quit, according to one study

The FDA is also reviewing authorizations for vaping products and has denied more than 90% of applications, Boesen said.

"A significant chunk of that market is at risk," he said. "And then obviously the [tax] revenue is at risk." 

Judgment day for vaping approaches
Judgment day for vaping approaches

There are more than 34 million smokers in the U.S. and over 16 million are living with a smoking-related disease, according to the CDC. Cigarettes are the leading cause of preventable disease, disability and death in the United States, causing 480,000 deaths per year.