NATO: Retail Sales Could Take $800M Hit if Federal Tobacco Tax Increases Pass

A new study also found that any hikes would negatively impact state and local tax revenues and jobs.
The cost of cigarettes

NATIONAL REPORT — A proposal to increase the federal excise tax on tobacco will do more than just impact adult consumers' wallets. It will impact everything from retail sales to tax revenue to the overall national economy.

According to a study commissioned by the National Association of Tobacco Outlets (NATO) and compiled by Chmura Economics and Analytics, any hike to the federal cigarettes, tobacco and vapor taxes will have a significant negative economic impact on the national and state levels.

"The large federal tax increases proposed in the congressional reconciliation budget bill 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, NATO stated.

The Tobacco Tax Equity Act of 2021 would close tax code loopholes for tobacco products by increasing the federal tax rate on cigarettes, pegging it to inflation and setting the federal tax rate for all other tobacco products at this same level. It is part of the federal $3.5-trillion reconciliation package, as Convenience Store News previously reported.

Notably, an increase would result in an $801-million loss in retail sales; a $1.135-billion decrease in state and local tax revenue; 14,030 lost jobs; and a $1.679-billion loss to the national economy.

Pointing to market data, the association said cigarette and other tobacco product sales account for more than one-third of in-store sales in U.S. convenience stores and roughly 90 percent of sales at tobacco outlets.

In addition, approximately 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, NATO stated.

"The proposed federal cigarette and tobacco product tax increases in the budget reconciliation bill 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-percent 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 percent," NATO explained.

"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)," it added.

To read the full Economic Impact Report, click here.