States Should Not Raise Taxes on Tobacco Products | Citizens Against Government Waste

States Should Not Raise Taxes on Tobacco Products

The WasteWatcher

Cigarettes, electronic delivery systems, and other tobacco products have become targets for tax increases in the U.S. and around the world.  The Centers for Disease Control and Prevention (CDC), the World Health Organization (WHO), and many state legislatures support raising taxes to discourage tobacco use.

While seemingly well-intended, tobacco tax increases do not raise the intended revenue, the funds raised get diverted for unrelated purposes, and high taxes lead to dangerous and illicit activity.  Since people can go to other states or online to purchase cigarettes where taxes are lower, estimates of expected revenue usually fall far short of expectations.  Programs that are supposed to be funded from the taxes then require other sources of revenue, which increases taxes on non-tobacco users.

Tobacco tax increases have been also been a significant cause of smuggling and black market cigarette products.  A December 4, 2019 Tax Foundation report concluded that “Excessive tax rates on cigarettes approach de fact prohibition in some states, inducing black and gray market movement of tobacco products into high-tax states from low-tax states and foreign sources.”  A December 2015 Department of State report, “The Global Illicit Trade in Tobacco: A Threat to National Security,” found that international smuggling is “a lucrative crime for some terror groups and a potential revenue sources to finance acts of terror” and annually causes losses to state and local governments of between $3 billion and $7 billion.

On the 2020 ballot, Colorado and Oregon have proposals that would raise taxes on electronic cigarettes, vaping products, and other tobacco products. 

In June 2020, the Colorado legislature approved HB 1427 to put the tobacco tax measure on the ballot as Proposition EE.  It would increase state taxes for cigarettes up to 9 cents per cigarettes and other tobacco products by up to 22 percent, as well as create a new tax for electronic cigarettes and other vaping products.  Once fully phased in, the state expects to collect $294 million annually

Meanwhile in Oregon, the legislature passed HB 2270 – B to place on the ballot as Measure 108,  which would increase the state’s excise tax by $2.00, or 150 percent from $1.33 to $3.33 per pack of cigarettes.  It would also tax electronic cigarettes and other nicotine products at 65 percent, and raise the cigar tax cap.  The excise tax on cigarettes alone is estimated to raise $160 million annually.

Both Oregon and Colorado would direct the revenue raised for health and education programs.  In Oregon, funds would be appropriated to the Oregon Health Authority for a medical assistance program, which includes mental health services.  It would also be appropriated to tribal health and Indian providers and programs, and local health programs that address tobacco use among youth and adults.  In Colorado, the taxes are intended to fund health and education programs, including funding for preschools, rural education, and the state education, housing development fund, as well as tobacco education and tax funds.  Some of the areas being funded by tax are unrelated to ending tobacco usage.

According to the CDC, Connecticut, New York, and the District of Columbia have cigarette excise taxes of $4.00 or higher per pack.  Hawaii, Massachusetts, Minnesota, Vermont, and Washington have excise taxes on cigarettes from $3.00 to $3.99 per pack.   

However, other states have rejected tobacco tax increases and extensions. For example, on June 10, 2011, Council for Citizens Against Government Waste President Tom Schatz supported then-Louisiana Governor Bobby Jindal’s (R) promise to veto a bill that would extend the four-cent tobacco tax increase in July 2012.  Schatz argued that raising excise taxes “does not produce projected revenue, as such tax increases drive purchases to untaxed or lower-tax venues.”  Gov. Jindal vetoed the bill as promised and the veto failed.  This decreased the excise tax from $0.36 to $0.32 after the expiration in July 2012. 

Raising taxes on tobacco products, particularly electronic cigarettes, like vaping and heated tobacco products, undermines the value of those products as a tobacco harm reduction product, that reduces and deters cigarette smoking  Public Health England found that vaping is 95 percent less harmful than traditional cigarettes and helps people quit smoking.  It is the burning of tobacco that creates chemicals causing deaths and illnesses, not the nicotine.  The government should be making it easier, not harder, to have access to e-cigarettes.

Raising taxes also does not necessarily equate with tobacco use reduction.  Cigarette excise taxes are among the most regressive taxes and therefore have the most adverse and disproportionate impact on people with low incomes.  States often use the revenue wastefully; people in high-tax states  go to other states to purchase tobacco products where taxes are lower, which cause states with these high taxes to lose revenue, and the high taxes create the opportunity for black market products that may lead to problems similar to those that occurred in 2019 when illicit vaping products, which contained vitamin E acetate, caused severe lung damage; along with significant national security issues. 

These factors make it logical to conclude that citizens in Oregon and Colorado should vote against the tax increase measures on their ballots.