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For many years, Indiana has worked hard to build and sustain a business-friendly environment to attract more businesses, providing jobs for Hoosiers and critical revenue to the state.
But we still face some seemingly intractable issues. One is the quality of our workforce, with a low percentage of college graduates and a recent significant decline in the percentage of college-age students choosing to seek a degree.
A more pernicious issue is the hidden tax on businesses of our smoking population.
Indiana currently has the eighth-highest smoking rate in the country at 17.35%, well above the national average. It is no surprise that we have the 12th-lowest cigarette tax in the country as well: As any Economics 101 professor will tell you, as prices increase, demand drops and vice versa. Lower prices equal higher usage.
The Richard M. Fairbanks Foundation recently commissioned studies that demonstrate the impact of smoking on businesses in Indiana and predict the consequences of increasing the cost of smoking. The impact on the corporate bottom line is stunning. The annual—yes, annual—cost to businesses statewide, including the cost of absenteeism, lost productivity and health insurance, is estimated at $3.1 billion ($609 million in Marion County alone).
This begins with the cost of insurance: Nearly 70% of employers in Indiana are self-insured and bear a heavy burden for the cost of treating smoking-related diseases. The increased cost of employer-provided insurance is estimated at $757 million annually statewide and $136 million in Marion County alone.
Workers who smoke are absent from work more than non-smokers (annual cost estimated at $272 million) and take smoking breaks that other employees do not receive (annual cost estimated at a whopping $1.7 billion). Additionally, employers suffer an annual $283 million loss related to lost productivity, based on an estimate that smokers work 1.9% to 4% less than non-smokers.
The hardest-hit industry is manufacturing, according to the study, as Indiana has the highest share of manufacturing employees in the country. In 2022, manufacturing businesses in the state paid an estimated nearly $645 million in smoking “taxes”.
What does this hidden tax do to the state’s efforts to bring good-paying manufacturing jobs to our residents? Any discerning employer will think twice if faced with the choice between Indiana and another state with a lower smoking rate.
The second Fairbanks Foundation study scientifically projects the results of increasing our $0.995 cent cigarette tax—again, the 12th-lowest in the nation. According to the study, an increase of $2 per pack would result in such outcomes as: 45,000 fewer smokers; 16.6% decrease in youth smoking; 17,700 fewer of today’s youth projected to smoke as adults; reduction of premature deaths caused by smoking; five-year reduction of 8,000 in smoking-affected pregnancies and births; and millions in annual health care cost savings
Beyond that, the state would save $13.3 million over five years in Medicaid costs. And new revenue to the state from the tax is estimated at over $356 million annually. That’s more than enough to restore the deep cuts imposed by legislators to critically important public health funding requested by the governor and proposed by a commission he convened to study the issue.
This seems like a no-brainer: lower cost of doing business in the state, significant Medicaid cost savings, significant new revenue to achieve improved public health outcomes and thousands of lives saved each year.
Legislators, it’s not too late. Please act now.•
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Daniels, an attorney with Krieg DeVault LLP, is a former U.S. attorney, assistant U.S. attorney general, and president of the Sagamore Institute. Send comments to ibjedit@ibj.com.
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