Delaware Proposes Cigarette and Vapor Tax Increases

While tobacco taxes are often framed as both revenue measures and public health tools, policymakers should approach such proposals carefully. Tobacco taxes are regressive, and increases frequently generate less revenue than projected, raise cross-border tax A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. competition concerns, and can create inconsistencies in how similar products are taxed. Delaware ’ s proposal illustrates many of these challenges.

Under Governor Meyer’s budget plan, Delaware would implement several changes to its tobacco tax structure. The cigarette tax would increase by more than 70 percent from $2.10 to $3.60 per pack. Vapor products would be taxed at $0.10 per milliliter, double the current rate. The tax on moist snuff would increase from $0.92 to $1.23 per ounce. The tax rate on OTPs would increase from 30 to 40 percent of the wholesale price.

Taken together, these changes are expected to generate approximately $18.9 million in new revenue for the state. However, tobacco taxes most heavily burden those who can least afford them and are poorly fitted to address growing government expenditures.

Like many excise taxes, tobacco taxes are highly regressive. Lower-income households spend a larger share of their income on these products than higher-income households.

As a result, tobacco tax increases tend to place a disproportionate burden on lower-income consumers. In Delaware, households in the lowest income quintile pay an effective tax rate nearly 14 times that faced by households in the highest income quintile.

Poorest Delaware Households Face the Greatest Effective Tax Rates for Cigarettes

Cigarette Tax Distribution of Effective Tax Rates Across Income Quintiles, 2025

| Income Group | Effective Tax Rate |
| --- | --- |
| 0% to 20% | 6.80% |
| 20% to 40% | 2.50% |
| 40% to 60% | 1.60% |
| 60% to 80% | 1.00% |
| 80% to 100% | 0.50% |
Notes: Adam Hoffer,“ Compare Tobacco Tax Data in Your State,” Tax Foundation, https://taxfoundation.org/data/all/state/tobacco-tax-data-tool/.
Supporters often argue that reduced consumption mitigates this concern, since higher prices can encourage smokers to quit. However, not all smokers are able or willing to quit immediately, meaning most smokers will continue to pay the higher tax.

Tobacco taxes are also a poor solution to the growing fiscal demands of state governments. Although tobacco tax increases are often attractive to lawmakers because they target a narrow segment of the population, that exact feature makes those revenues unstable and more volatile than broad-based income, sales, and property taxes.

Tobacco consumption has also been steadily declining in the United States for decades. Not surprisingly, tobacco tax revenues have declined to match. Tax hikes have historically provided short-term increases in revenue, but those revenues erode as the tax base The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. shrinks.

Delaware is no exception to the national trend. Historically, cigarette tax increases in Delaware have brought short-lived increases to revenues before declining consumption and currency debasement necessitated further rate hikes to chase similar revenue levels.

The declines have accelerated in recent years with the increased availability of less harmful alternative products. Revenues adjusted for CPI inflation Inflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin are already lower than they were in 2004 despite more than doubling the CPI-adjusted tax rate since. Future tax hikes are likely to bring in less and less revenue because the tax is being paid by fewer and fewer smokers.

Governor Meyer’s budget also includes higher taxes on alternative nicotine products, including vapes. Public health experts argue that vapor products pose substantially lower health risks than combustible cigarettes. While not risk-free, products that allow users to consume nicotine without inhaling combusted tobacco harm users much less.

Tax policy can influence consumer behavior in this space. Basic economics tells us that as tax-induced prices increase, consumers will use less of a product. As taxes increase on alternative tobacco products, the tax system may inadvertently discourage smokers from switching to potentially less harmful alternatives.

The governor’s proposal to raise $18.9 million in additional revenue through higher tobacco taxes represents a significant change to Delaware’s tobacco tax structure. By increasing taxes on cigarettes, vapor products, moist snuff, and other tobacco products, the plan expands the state’s reliance on tobacco excise taxes and its tax burden on the poorest Delaware households.

Well-designed tax policy should prioritize simplicity, neutrality, and transparency—principles that remain important even when taxes target products with well-known public health risks. Delaware policymakers should carefully evaluate whether the proposed changes strike the right balance between these competing objectives.

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About the Author

Expert

Adam Hoffer

Director of Excise Tax Policy Adam Hoffer is the Director of Excise Tax Policy at the Tax Foundation. Dr. Hoffer earned his PhD in Economics from West Virginia University and his undergraduate degree from Washington & Jefferson College.