Excise taxes versus other types of taxes

Adam Hoffer is director of excise tax policy at the Tax Foundation, a nonpartisan tax policy nonprofit organization.

He said excise taxes are different from broad funding sources like income taxes, sales taxes and property taxes, because they are specialty charges put on a targeted set of goods.

Tobacco, alcohol and fuel have been historically known as the “big three” excise taxes, but it has widened over recent years to include recreational marijuana products and sports betting.

Hoffer and other tax policy experts say one of the concerns with states relying on excise taxes is that they generate the most amount of money from the people who can least afford it.

“Almost all products that receive an excise tax are more heavily consumed by lower-income Americans,” he said. “So when we tax them, those taxes are regressive.”

Aleks Casper, director of advocacy for the American Lung Association, said they endorse states using tax increases for so-called “sin” products like tobacco, in the hopes it will drive people to change their behavior. She said they are not concerned that the price increase would hit lower-income Delawareans.

“If you look at the history of where tobacco and tobacco companies have historically marketed and targeted, it is many times those low-income communities that already suffered disproportionately from smoking-caused disease, disability and death,” she said.

She said her organization is focused on public health benefits, not on the possible revenue generating aspect of raising tobacco costs. Meyer said on WHYY’s and Delaware Public Media’s “Ask Governor Meyer” call-in show last week that he believes the state would save money if higher prices cause fewer people to smoke.

“The more people that use tobacco, the worse it is for our health care system and it increases the cost of health care,” he said.

But Hoffer said he doesn’t believe using regressive taxation to force behavior change is effective.

“If you’re trying to improve the lives, especially of lower-income households, then regressive taxes, by their definition, make that really hard to accomplish,” he said. “Because you’re going to make a lot of those households worse off because you’re taxing them more heavily.”

Hoffer said tobacco tax revenue can also be unreliable to fund an entire state government because the number of smokers in Delaware and across the U.S. has been dwindling for the past several years.

“Over the past 60 years, we’ve seen fewer people smoke each and every year,” Hoffer said. “This is an overwhelming win for public health and [the] health of American consumers, but as states have become more and more reliant on cigarette tax revenue, then they start facing bigger and bigger challenges, because it’s a shrinking tax base.”

In fiscal year 2025, Delaware collected $87.5 million in cigarette taxes, compared with $92.4 million in fiscal 24.

Last year, Meyer proposed making the state’s income tax brackets more progressive by making people earning more than $600,000 a year pay a higher rate than someone making $60,000. But legislation attempting to do that failed to garner the necessary political support in the General Assembly.