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||2023||2024||2025||2026||2027||2028||2029||2030||2031||2032||2023–
|Change in Outlays||*||*||-0.1||-0.1||-0.1||-0.1||-0.1||-0.1||-0.1||-0.1||-0.3||-0.9|
|Change in Revenues||3.1||4.1||4.1||4.1||4.1||4.2||4.3||4.4||4.4||4.5||19.6||41.4|
|Decrease (-) in the Deficit||-3.1||-4.2||-4.2||-4.2||-4.3||-4.3||-4.4||-4.5||-4.6||-4.6||-19.9||-42.3|
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. Under this option, exporters of tobacco products would no longer be able to claim drawbacks (or refunds) of excise taxes on tobacco products for which they have not paid such taxes. (That ability was created by a recent court ruling.) This option would also reduce mandatory outlays, mainly because improvements in people's health would lead to reduced spending for Medicaid and Medicare.