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Smoking Reforms in Spotlight in Interim; Increased Cigarette Tax Most Likely

2018-08-27T12:51:35+00:00August 27th, 2018|

The interim study committees are just getting started in earnest; on Thursday, the Interim Study Committee on Fiscal Policy went through a lengthy agenda. The topic of the fiscal, economic and workforce development impact of Indiana smoking rates was of special interest to the Indiana Chamber. Smoking reform has been a top legislative priority for the past few sessions.

Two founding members of the Alliance for a Healthier Indiana kicked off the testimony: Bryan Mills, CEO of Community Health, and Kevin Brinegar, president and CEO of the Indiana Chamber.

Among the messages they conveyed:

  • While Indiana is one of the best states to do business, we are at the bottom when it comes to health care costs and health rankings.
  • Indiana ranks 41st in percentage of smokers and the costs associated with smoking.
  • These consistently poor health metrics undermine our progress as a state.
  • Statistics show that significantly raising the cigarette tax and increasing the smoking age from 18 to 21 will reduce smoking and make a difference.
  • Action should be taken in the 2019 Legislature.

Brinegar specifically noted:

“Currently, revenue from the state’s 99.5 cent per pack cigarette tax does not even raise enough money to cover the additional cost to the Medicaid program for individuals with smoking-related diseases.

“Raising the cigarette tax by $1.50 per pack will create a much higher barrier of entry for young people and prevent many of them from starting to smoke, not to mention being an incentive to quit for others.

“Smoking in the workplace costs Hoosier employers $6.2 BILLION per year in additional health costs, absenteeism and lost productivity. That money could be used to provide higher wages and benefits, additional training and much more.

“Health care costs for smokers in the workplace average 40% higher than nonsmokers. Also, smokers take the equivalent of an additional three weeks of vacation per year in the form of smoke breaks during the workday.”

John Thompson, CEO of Thompson Distribution Company and an Indiana Chamber executive committee member, provided an example of an employee that contracted lung cancer from smoking and the impact that it had on the life of that employee and the costs to the business.

The opposition focused on the loss of revenue from cross border sales and Indiana’s current market advantage because its cigarette tax is less than surrounding states. An increase in the cigarette tax would eliminate that positive revenue flow.

Meanwhile, data provided to the committee by the Legislative Services Agency makes a strong case for raising the tax.

The last cigarette tax rate increase was in 2008, when the tax went from $0.555 to $0.995 per pack. That increase resulted in a decrease in demand (lower number of packs sold), but the revenue from the tax grew in FY 2008 over FY 2007. Because of the increased tax, consumption has been declining since FY 2007.

And while the revenue from the tax has been declining as well, at a rate a little more than 2% per year since 2008, the amount of revenue generated from the cigarette tax in FY 2018 is still greater than the amount of revenue generated in FY 2007 before the increased tax was implemented. The current cigarette and tobacco tax generated over $418 million in FY 2018. Over half of that revenue goes to the state’s general fund and more than a fourth of it goes to the Healthy Indiana Plan Trust Fund.

It is estimated that an increase of $1.50 per pack – after calculating the reduced demand – will generate additional revenue somewhere north of $300 million.  And while the Alliance for a Healthier Indiana would like that revenue mostly to be used for “health” purposes, that number will likely get the attention of legislators who may be looking for additional sources of revenue for other policies.

No action was taken by the committee, and the Chamber doesn’t expect a recommendation to the Legislature either for or against a tax – rather just a report on what information was provided. Both sides of the argument weren’t showing all their cards and will gear up for a repeat performance during the 2019 legislative session. Whether next year will be the year for increasing the smoking age is uncertain but an increase in the cigarette tax would appear to be a possibility.

Resource: Mike Ripley at (317) 264-6883 or email: mripley@indianachamber.com