Introduction: Federal Excise Tax Increase Study
Retailers and distributors are of critical importance to the national, state and local economies. There are over 253,000 retail stores that sell tobacco products and more than half of them, some 136,000 stores, are single-owner operations. Many of these stores are operated by diverse, middle-class, and first-generation owners and their families, and are the primary source of their and their employees’ income.
The large federal tax increases proposed in S. 1314 / H.R. 2786, the Tobacco Tax Equity Act of 2021, would have a significant negative economic impact not only on retail stores, distributors, and their employees, but also on states, cities and the local communities.
According to market data, cigarette and other tobacco product sales account for more than one-third of in-store sales at the nation’s convenience stores and up- wards of 90% of sales at tobacco outlet stores. In addition, some 3.8 million employees nationwide work at stores that sell tobacco products. State and local excise taxes and sales taxes collected on these products are also critical revenue sources to state and localities across the nation.
Cigarette and other tobacco product sales are a vital part of retailers’ continued operations, helping them support their communities by providing jobs to local residents and also serving as a source of groceries, gasoline and other product staples to local residents. In fact, convenience stores were deemed to be “essential businesses” during the COVID-19 pandemic and remained open during statewide business shutdowns to provide necessary products and services to their customers, despite the risks of being open to the public. In addition, these retailers are selling tobacco products to legal age adults in a law-abiding, responsible manner.
The proposed federal cigarette and tobacco product tax increases in S. 1314 / H.R. 2786 would result in major market disruptions and substantial economic impacts. These disruptions and impacts would occur because the legislation would double the federal cigarette tax, a 100% increase from $1.01 per pack to $2.02 per pack, while increasing the tax rates on other tobacco products by up to 2,000%. Such drastic increases in federal excise tax rates will reduce sales, lead to employee terminations, cause lost wage income, decrease state and local excise and sales tax collections, and reduce annual Master Settlement Agreement payments to all U.S. states and territories (including the four separately settling states).
Compounding these direct economic impacts will be additional indirect and induced economic losses as explained in this report. Moreover, cigarette and tobacco excise taxes are highly regressive and these proposed tax rate increases will fall most heavily on those who are least able to afford paying such high product tax rates.
For the reasons outlined above, S.1314 / H.R. 2786 would be detrimental to NATO retail store members, their employees, and their communities, as well to the national, state, and local economies."
Economic Impact from the Proposed Tobacco Tax Equity Act of 2021
Economic Impact Report: Report
Full Economic Impact Report with Appendix: Report
Appendix to Economic Impact Report: Report