Rather than continuing to increase tobacco taxes, policy makers should focus on modernizing the tobacco tax code to reflect today’s realities. Tax classifications written many decades ago make little sense today given the science showing major risk differences between combustible and smoke-free products. And whole new categories of products, such as e-vapor, have entered the market and in many jurisdictions are simply not subject to any excise tax at all.

The real opportunity, in our view, is tax modernization. Bring new products into the tax code. Redefine tax classifications to distinguish combustible from smoke-free products. And provide reduced tax rates for those products that the FDA determines warrant Modified Risk Tobacco Product claims under the exacting standards it applies. The Modified Risk Tobacco Product process is intended to permit truthful and accurate communication of relative risk information about a tobacco product to adult tobacco consumers.

Consistent with this approach, in 2019 and 2020, we advocated for a modernized tax code New Mexico, Washington, Utah, and Colorado. Each of these states now provides for a tax differential for products the FDA authorizes as a Modified Risk Tobacco Product. As of April 1, 2021, eight states have enacted legislation providing for tax differentiation.

We also opposed a number of tobacco excise tax increases in 2020, based on data showing that: these products are already highly taxed; cigarette excise tax revenues are unstable sources of revenue for the states; excise taxes worsen income and wealth inequality; excessive excise taxes lead to illicit markets; and excise taxes hurt legitimate retailers. Twenty states proposed increasing cigarette excise taxes in 2020, with Colorado, Oregon, and Virginia enacting increases. Thirteen states in 2020 proposed increasing taxes on moist snuff tobacco, with two states enacting tax increases. 

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