In November, Montana voters will consider a ballot initiative to increase the tax on all tobacco products, including cigarettes, smokeless tobacco, electronic cigarettes and vaping devices.
The initiative proposes a “$2.00 increase per pack of cigarettes” to a total of $3.70. It would increase the tax on most snuff to “83% of wholesale or $3.70 per 1.2 ounces.” The tax rate on other tobacco products would increase “by 33% of the wholesale price,” with a new tax imposed on e-cigarettes and vaping devices.
The new funds are supposed to eliminate the sunset date for the state’s expanded Medicaid services, which is expected to end June 30, 2019. Remaining revenue would be used for “health-related programs, including costs for Montana’s current Medicaid program; veterans’ services; smoking prevention and cessation programs; long-term care services for seniors and people with disabilities.”
Although intended as a means to raise revenue, cigarette taxes often drive consumers to purchase cigarettes in neighboring states or on black markets. Montana’s current cigarette tax of $1.70 a pack is already higher than neighboring states. Due to onerous taxes, Montana ranked 11th among the states in cigarette smuggling in 2015, according to the Tax Foundation. Neighboring states—Idaho, North Dakota, and Wyoming—ranked 46th, 38th and 42nd, respectively. Montana already ranks high for cigarette smuggling with current taxes. If the initiative is successful, an influx of smuggled tobacco will likely follow—reducing tax revenue and magnifying the state’s budget problems.
Cigarette taxes are also highly regressive and disproportionately impact lower-income smokers. From “2010 to 2011, smokers earning less than $30,000 per year spent 14.2 percent of their household income on cigarettes, compared to 4.3 percent for smokers earning between $30,000 and $59,999 and 2 percent for smokers earning more than $60,000” according to Cato Journal.
The Montana proposal comes at a time when cigarette smoking rates are steadily declining. In 2017, only 18.5 percent of Montanans smoked, down from 24.1 percent in 1991, according to the United Health Foundation. One factor in declining smoking rates is the introduction of tobacco harm reduction (THR) products, including smokeless tobacco, e-cigarettes, and vaping devices. Imposing taxes on THR products similar to those on tobacco products undermines the public health gains THR products offer.
THR products deliver nicotine without the harmful constituents in combustible cigarette smoke. Smokeless tobacco use has been found to be “at least 98 percent safer than smoking,” according to Dr. Brad Rodu, a senior fellow at The Heartland Institute, who has researched smokeless tobacco for more than 20 years.
Electronic cigarettes and vaping devices are also less harmful than combustible cigarettes. Several public health groups have found that e-cigarettes are safer than cigarettes, including Public Health England, the Royal College of Physicians, Cancer Research UK and the American Cancer Society. Some groups have even urged the use of e-cigarettes “to aid in smoking cessation.”
There is also evidence that e-cigarettes and vaping devices could help states address budget deficits by reducing the costs of smoking-related illnesses. J. Scott Moody, chief executive officer and chief economist at State Budget Solutions, examined the associated costs of tobacco cigarette smoking on Medicaid spending and estimated that if electronic cigarettes had been adopted in place of tobacco cigarettes, savings to Medicaid expenses could have amounted to $48 billion by 2012.
A 2017 policy study by the R Street Institute analyzed a smaller number of Medicaid recipients switching from combustible cigarettes to e-cigarettes. Associate Fellow Richard B. Belzer used a sample size of “1% of smokers [within] demographic groups permanently” switching. Using this analysis, Belzer estimates that Medicaid savings “will be approximately $2.8 billion per 1 percent of enrollees,” over the next 25 years.
Tobacco tax increases boost illegal markets and will all but ensure that Montana remains the regional leader in cigarette smuggling. These taxes disproportionately harm lower-income smokers, and are minimally effective at curbing tobacco consumption. The Montana initiative would increase taxes on THR products, undermining public health gains and increasing state health care costs. Rather than punish smokers and individuals trying to quit, Montanans should embrace THR products and implement comprehensive tax reforms to address state revenue shortfalls.
The following documents provide additional information on tobacco taxes and tobacco harm reduction.
Three Reasons to Avoid Tobacco Taxes
Elizabeth Stelle of the Commonwealth Foundation examines Pennsylvania’s proposed tobacco tax hikes. Stelle argues they are the wrong prescription for the state, and she outlines several reasons why they are harmful.
Cigarette Taxes and Smoking
In this study from the Cato Institute, Kevin Callison and Robert Kaestner suggest future cigarette-tax increases will offer relatively few public health benefits, and they say the justification given for future taxes should be based on the public finance aspects of cigarette taxes, such as the regressiveness, volatility, or the rate of revenue growth associated with those taxes.
Ten Principles of State Fiscal Policy
This Heartland Institute booklet provides policymakers and civic and business leaders a highly condensed yet easy-to-read guide to state fiscal policy matters. It presents the 10 most important principles of sound fiscal policy, from “Above all else: Keep taxes low,” to “Protect state employees from politics.”
Research & Commentary: Top Ten Reasons Not to Raise Tobacco Taxes
Heartland Institute Government Relations Director John Nothdurft argues targeted tax increases serve only to push sound fiscal policies and real budget reforms to the public policy back burner. Legislators concerned about the public health effects of tobacco should encourage the use of readily available smoking cessation products and services instead of supporting bad tax policy.
Five Things to Consider Before Raising Tobacco Taxes: A Review of the Research
This Heartland Institute Policy Brief argues, “Tax increases above current levels are not justified by appealing to the costs smokers impose on nonsmokers. Smokers already pay more than this measure could justify.”
Vaping, E-Cigarettes, and Public Policy Toward Alternatives to Smoking
For decades, lawmakers and regulators have used taxes, bans, and burdensome regulations as part of their attempt to reduce the negative health effects of smoking. Recently, some have sought to extend those policies to electronic cigarettes. This booklet from The Heartland Institute urges policymakers to re-think that tax-and-regulate strategy. Policymakers should be mindful of the extensive research that supports tobacco harm reduction and understand bans, excessive regulations, and high taxes on e-cigarettes often encourage smokers to continue using more-harmful traditional cigarette products.
Research & Commentary: Study Finds E-Cigarettes Would Prevent 6.6 Million Premature Deaths
In this Research & Commentary, Heartland Institute State Government Relations Manager Lindsey Stroud examines an October 2017 Tobacco Control study that found electronic nicotine delivery systems (ENDS) might help extend life for millions of people. The authors of the study found there was an estimated 6.6 million fewer deaths and more than 86 million fewer-life-years lost over a ten year period because of ENDS products. Stroud concludes the use of ENDS could also help improve the budgets of numerous state programs, including Medicaid.
Research & Commentary: Qualitative Study on E-cigarettes Shows More Evidence of Tobacco Harm Reduction
In this Research & Commentary, Heartland Institute State Government Relations Manager Lindsey Stroud examines a study, published in The International Journal of Environmental Research and Public Health in June 2016, that provides additional evidence showing e-cigarettes and vaporized nicotine products (VNPs) are an effective tobacco harm-reduction tool.
E-Cigarette Primer for State and Local Lawmakers
Joel Nitzkin provides evidence e-cigarettes work as a tobacco harm reduction modality and reviews the arguments against them. He closes with recommendations for actions state and local lawmakers should and should not consider regarding tobacco harm reduction and e-cigarettes.
Research & Commentary: New CDC Report Finds Vaping Helps Smokers Quit
A new report released by the Centers for Disease Control and Prevention (CDC) found only 0.4 percent of the people who had never smoked tobacco in a CDC study group are current vapers, which the report defines as using a vaping device either every day or some days. The CDC report, the first of its kind, estimates e-cigarette use among U.S. adults using a nationally representative household survey. The report’s findings claim only 3.4 of adults who have never smoked have tried an e-cigarette; 12.6 percent of Americans have tried an e-cigarette; and less than 4 percent of the U.S. population is regular e-cigarette users.
E-Cigarettes Poised to Save Medicaid Billions
In a new report from State Budget Solutions, J. Scott Moody finds e-cigarette use could create significant savings for state governments, especially in their Medicaid programs: “As shown in this study, the potential savings to Medicaid significantly exceeds [sic] the state revenue raised from the cigarette excise tax and tobacco settlement payments by 87%. As such, the rational policy decision is to adopt a non-interventionist stance toward the evolution and adoption of the e-cig until hard evidence proves otherwise.”
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, our Consumer Freedom Lounge, and PolicyBot, Heartland’s free online research database.
Whether sending an expert to your state to testify or brief your caucus, hosting an event in your state, or simply sending you further information on the topic, Heartland can assist you. If you have any questions or comments, contact State Government Relations Manager Charlie Katebi at [email protected] or 312/377-4000.