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Tobacco is the only product that, when used as directed, kills the consumer.
One of the most effective approaches to discourage cigarette smoking has been to increase cigarette taxes. State and federal governments have progressively increased taxes on cigarettes to boost revenue and significantly reduce smoking, especially among children who are the most cost-sensitive.
Conspicuously, there is a long-standing federal and state problem concerning inequitably low taxes on loose pipe tobacco and cigars and the absence of taxation or under-taxation of “alternative” smokeless tobacco products.
Indiana’s adult smoking rate ranks 10th-highest among the states. Our cigarette tax is 38th-lowest in the country at 99.5 cents per pack and has not been increased since 2007. The surrounding states of Wisconsin, Illinois, Ohio, Michigan and even Kentucky, a tobacco-growing state, have higher cigarette taxes.
Last year, the Indiana General Assembly surprisingly and uncharacteristically enacted its first tax on vaping products. And it did it the right way—in compliance with public-health best practices concerning tax percentages. The statute requires 25% taxation of the wholesale price on closed-system vaping pods (think Juul) and 15% of retail on open-refillable systems (e-liquids in vape shops). The different percentages specified in the wholesale and retail methodologies produce parity in taxation amounts.
On this background, Senate Bill 382, mostly a regressive tobacco taxation bill, is advancing this year. Advantageous to the tobacco industry, the measure proposes reducing the tax rate on closed-system vaping from 25% of wholesale price to 15%. The bill also proposes placing a 72-cent tax cap on premium cigars (cigars priced at more than $3), a decrease from the current 24% of wholesale price. Additionally, the bill proposes a new tax on alternative smokeless tobacco products. Unfortunately, it doesn’t use the best-practice methodology of basing taxation on a percentage of price.
Unlike the cigarette tax, which is an amount per pack, smokeless tobacco in most states is taxed on a percentage-of-wholesale price basis. Taxing the diverse group of smokeless products with their varying design, weights and package amounts by this method makes the most sense. It also creates a consistent tax rate that keeps up with price inflation. However, it is also important to assure that the tax rates on smokeless products and cigarettes are roughly comparable by linking the smokeless-tax rates with the cigarette tax. Tax equality would minimize shifts in use to cheaper products, especially among children.
Much of this is about competition within the tobacco industry. Under a weight-based tax, similar products are taxed at the same rate regardless of price, thus sharply increasing the effective tax on lower-priced products and reducing the effective tax on premium brands. One solution to counter the promotion of weight-based taxing would be to combine the percentage-of-price method with a reasonable minimum tax to assure some measure of cost parity between lower-cost and premium brands on the market. Weight-based methodologies also greatly under-tax the new generation of super-lightweight smokeless products being specifically promoted and designed for youth consumption. These extremely low-weight products would have almost no tax placed on them under a weight-based system.
Most important, reducing taxes on tobacco products, especially vaping, and under-taxing alternative smokeless tobacco products will only encourage initiation of tobacco and nicotine use among our children.•
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Feldman is a family physician, author, lecturer and former Indiana State Department of Health commissioner for Gov. Frank O’Bannon. Send comments to ibjedit@ibj.com.
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