Function 550 - Health

Increase Excise Taxes on Tobacco Products

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2021–
Change in Outlays * * -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.3 -0.8
Change in Revenues 3.1 4.1 3.8 3.8 3.8 3.6 3.6 3.5 3.5 3.4 18.6 36.2
  Decrease (-) in the Deficit -3.1 -4.1 -3.9 -3.9 -3.9 -3.7 -3.7 -3.6 -3.6 -3.5 -18.9 -37.0

Data sources: Staff of the Joint Committee on Taxation; Congressional Budget Office.
This option would take effect in January 2021.
An offset to reflect reduced income and payroll taxes has been applied to the estimates in this table.
* = between -$50 million and zero.

The federal government taxes tobacco products, including cigarettes, cigars, pipe tobacco, and roll-your-own tobacco. The federal excise tax on cigarettes is just over $1.00 per pack. Large cigars are taxed at 52.75 percent of the manufacturer’s sales price, with a maximum tax of 40.26 cents per cigar. Pipe and roll-your-own tobacco are taxed at $2.83 and $24.78 per pound, respectively.

This option would make several changes to the federal excise taxes on tobacco products. It would raise the federal excise tax on all tobacco products by 50 percent. In addition, it would raise the tax on pipe tobacco to equal that for roll-your-own tobacco and set a minimum tax rate on large cigars equal to the tax rate on cigarettes. This option would also reduce mandatory outlays, mainly because of reduced spending for Medicaid and Medicare due to improvements in people’s health status.