Michigan House Approves Temporary Three-Year Cigarette Tax Hike

Published July 1, 2004

On May 26, the Michigan House of Representatives voted in favor of making the state’s cigarette tax the nation’s second highest, behind only New Jersey, on a temporary basis.

The Michigan House narrowly approved increasing the state tax on a pack of cigarettes from $1.25 to $2 as part of a plan to balance the state budget in House Bill 5632.

The “as passed” legislation was different from that proposed earlier by Governor Jennifer M. Granholm (D) in two ways: The House bill excluded a 60 percent increase (on the 20 percent mark-up) on the wholesale price of “other tobacco products” (cigars and smokeless tobacco), and the cigarette tax hike was limited to a three-year period. The governor’s plan would have made the tax permanent and included smokeless tobacco products and cigars.

In a sarcastic response to the legislation, State Representative John Garfield (R-Oakland County) introduced an amendment to raise the cigarette tax to $10 per pack. “We should not be trying to balance our state budget on a bad habit. Rather, government should try kicking its bad habit of spending beyond its means,” he said. The amendment was not seconded and never brought to a vote.

The vote on HB 5632 came less than a week after the body entirely rejected a cigarette tax hike proposal, approving instead $266 million in spending cuts to help balance the state budget.

If enacted, the cuts would affect all departments of state government except the Michigan Department of Transportation. Among other cuts, public universities and community colleges would receive $90 million less than last year; Medicaid funding for caretaker relatives was cut $42 million; “Merit Awards” would go only to students with a “C” average or better, saving $20 million; and arts grants were cut by $10 million. The Merit Awards, scholarships for top students going to college, are funded by the national tobacco settlement.

While state legislators on the House side did not accept the governor’s call for higher taxes on smokeless tobacco products, state senators may reinsert the proposal when the Senate takes up the legislation.

Some reports indicate Granholm has bipartisan support for that move. But the Detroit Free Press reported on May 30, “Senate Republicans said Thursday [May 27] they won’t vote for the cigarette tax increase unless GOP legislation aimed at creating jobs is included in the deal. Republicans are pushing a number of bills they say will create new jobs and promote a more business-friendly climate within the state.”

Tax Effects on Health
Many proponents of tobacco tax hikes have argued taxing smokers would improve their health by discouraging tobacco use. But evidence also suggests cutting taxes on smokeless tobacco could achieve health gains.

“Lowering taxes on smokeless tobacco to encourage smokers to switch from cigarettes to smokeless tobacco is a legitimate harm reduction strategy,” said Joe Lehman, executive vice president of the Mackinac Center for Public Policy.

Manufacturers of smokeless tobacco say their newer products can be used discreetly in social situations and still provide high levels of satisfaction to former cigarette users. Some studies show smokeless tobacco is much safer than the combustible forms.

Brad Rodu, professor of pathology at the University of Alabama at Birmingham, is an expert on smokeless tobacco usage and has studied the product’s effects on cancer rates and mortality.

Rodu found a link between the high rates of smokeless tobacco use among Swedish men and their relatively low lung cancer rates–the lowest among 20 European countries studied. Other evidence has been cited by Rodu in testimony before Congress. For example:

  • In 2002, the British Royal College of Physicians, a prestigious medical society, published “Protecting Smokers, Saving Lives,” which estimated smokeless tobacco products are less hazardous than smoking, depending on the product; and
  • A 1998 study published in the American Journal of Medicine reported 25 percent of “inveterate” smokers (people who tried but failed repeatedly to quit smoking) were able to successfully switch from smoking cigarettes to smokeless tobacco products.

“If officials care about the health of Michigan’s tobacco users and aren’t just looking for an easy target for a tax increase, cutting taxes on smokeless tobacco is a sound option,” said Lehman.

“Just for the health of it, lawmakers should quash the tax increase and repeal existing taxes on smokeless tobacco,” Lehman said.

The Senate had not acted on the budget proposal as this issue of Budget & Tax News went to press. Michigan’s fiscal year begins July 1.

Michael LaFaive is director of fiscal policy at the Mackinac Center for Public Policy. His email address is [email protected].