NATO Slams Federal Tax Increase Proposal

Tobacco group says largest federal cigarette and tobacco tax increase in history “will impact retailers, jobs and low-income Americans.”

President Obama’s proposal to impose the largest increase in the federal cigarette tax in the history of the country to fund preschool programs is unfair and ironic, the National Association of Tobacco Outlets (NATO) said in a response to the President’s budget unveiled yesterday.

omaha-seeks-7-occupation-tax-on-tobacco-products01“For the President to target a minority of adult Americans with this massive tax increase to pay for the extension of preschool programs nationwide is unfair and ironic,” said Tom Briant, executive director of NATO. “With the Centers for Disease Control reporting that 29 percent of all smokers have incomes below the poverty level, it is ironic that the President’s proposal would seek to nearly double cigarette and tobacco taxes that fall more heavily on lower income Americans to fund expanded access to pre-kindergarten programs for all four-year-old children from families with low to moderate incomes.”

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The proposal unveiled by the President today nearly doubles the current federal cigarette tax from $1.01 per pack to $1.95 per pack, increases taxes on other tobacco products such as cigars, pipe tobacco and smokeless tobacco about the same proportion and indexes the taxes for inflation after 2014.

“With cigarette sales declining year to year, the stability of this funding source is unreliable and therefore will likely not produce the $78 billion dollars the President needs to fund the preschool education program over the next decade. If pre-school education is important to the President, a better, more stable source of funding should be identified because the country can no longer depend on tobacco taxes to solve the country’s problems,” said Briant.

Four years ago in 2009, President Obama signed into law what was then the single-largest increase in the federal cigarette and tobacco tax rates in the history of America. At that time, the federal cigarette tax was increased by $.62 per pack from $.39 to $1.01 per pack. According to a 2012 Federal Trade

Commission report on cigarette sales in 2009 and 2010, cigarette sales declined 10 percent nationwide in

2009, the year the federal tax increase went into effect, followed by another 3 percent decrease in cigarette sales in 2010. Based on the historical cigarette sales decline in 2009 and 2010, the new higher tax increase on cigarettes announced today could result in even larger declines in cigarette sales.

These proposed increases in the cigarette and tobacco taxation rates will, if passed into law, seriously impact tobacco retailers, said Briant. “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 percent of their in-store sales from tobacco products, these higher taxes would also spell sales losses and job curtailment,” Briant said.