(The Center Square) – The federal government is considering a proposal to limit nicotine in cigarettes as smoking hits historic lows; if approved, it could result in a loss of over $30 billion annually in economic output.
While tobacco helped shape the nation into what it is today, the federal government didn’t start regulating cigarettes until 2009. Tobacco products were long exempted from federal oversight until then, limiting regulatory authority to health warnings and a ban on smoking in certain areas.
While the U.S. Food and Drug Administration took action to ban and regulate certain products in 2009, the agency, to this day, has not set a standard nicotine level for cigarettes. According to Statista, tobacco products could generate $108.5 billion this year, 76% from cigarettes.
The Biden administration hinted at the proposal last month during the outgoing president’s final weeks in office. If approved, the new FDA rule would set a standard amount of nicotine allowed in cigarettes, potentially driving up counterfeit sales to meet new demands.
“Even though smoking rates are lower than ever before, law enforcement is going to have to address the black market,” Richard Marianos, a former assistant director of the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, or ATF, told The Center Square.
According to Gallup, which tracks annual smoking rates, 11% of U.S. adults reported using cigarettes in July 2024, matching a historic low in 2022. Marianos said the proposed rule could reverse the trend as people smoke more to achieve the same feeling as before.
However, Marianos also argued the rule would create a new demand for cigarettes with more nicotine, similar to how taxing tobacco creates a demand for counterfeit products. According to the Tax Foundation, significant price differences between states drive up illegal smuggling.
According to the Tax Foundation, New York imported the most smuggled cigarettes in 2022, with about 54.3% of cigarettes consumed there purchased from other states. New York also has the highest state cigarette tax, $5.35 per pack, to which New York City adds an extra $1.50.
“The black market doesn’t pay taxes,” Marianos said. “The black market doesn’t support our roads, our schools, our public safety, all the things that taxes do.”
He said the rule could empower smugglers along the border, particularly in states that receive international cargo. Washington and California receive goods from the north and south and cargo through ports from China, one of the largest counterfeit producers worldwide.
Counterfeits help people avoid taxes but also rob the government of valuable revenue, not to mention health concerns. According to a December 2024 Chmura Economics report, limiting nicotine could impact the national economy by $30.6 billion annually, with over 154,000 jobs lost.
The report estimates that federal excise tax revenue from tobacco would drop by $8 billion, in addition to state and local tax revenue by as much as $16 billion annually. The rule would also impact payments from the Tobacco Master Settlement and other agreements by $5.6 billion.
“Everybody wins but the taxpayer in this situation,” Marianos said.