Indiana lawmakers discuss doubling cigarette tax rate

Indiana lawmakers are considering doubling the state’s cigarette tax and imposing a tax on e-cigarettes.

House Bill 1434 would increase the cigarette tax by $1 per pack, bringing it to $2 per pack, and tax e-cigarettes and e-liquids at 39% of the wholesale price. The taxes would take effect July 1.

The bill, authored by Rep. Julie Olthoff, R-Hebron, would also define e-liquid and e-cigarettes as tobacco products in state law.

State lawmakers have not increased the cigarette tax since 2007. Indiana’s cigarette tax rate is lower than all neighboring states.

No special tax is currently imposed on vaping products, but lawmakers have been debating the issue for years.

According to a fiscal analysis prepared by the Legislative Services Agency, the cigarette tax increases could generate an additional $278 million in taxes in fiscal year 2022 and $294 million in fiscal year 2023.

During the discussion of the bill in the House Public Health Committee on Monday, several lawmakers and supporters of the tax hike expressed concerns about how the additional revenue would be spent.

As written, more than 56% of the new tax revenue would be deposited into the state’s general fund, 27% would go toward the Healthy Indiana Plan Trust Fund, about 5% would support the Pension Relief Fund and 4% would be distributed to the cigarette tax fund.

The remaining amount would be distributed to Medicaid reimbursements, the state retiree health benefit trust fund and the mental health centers fund.

State Rep. Robin Shackleford, D-Indianapolis, said she would like to see a higher percentage of the revenue being dedicated for health-related programs.

State Rep. Ryan Hatfield, D-Evansville, had the same concern.

“If this bill is about health care projections for the people of Indiana, why are we not dedicating those funds raised by the bill to health care itself?” Hatfield said.

Olthoff said she’s willing to tweak the bill so more of the funding is dedicated to health care initiatives.

The Indiana Chamber of Commerce, Indy Chamber, Indiana Hospital Association, United Way of Central Indiana, American Cancer Society, Indiana State Medical Association and American Heart Association are among the groups supporting the legislation.

Marion County Public Health Department Director Dr. Virginia Caine also spoke in support of the bill, but she urged lawmakers to consider a $2 per pack increase and make sure the revenue supports public health programs.

The $1 per pack tax increase on cigarettes is lower than the $2 per pack increase that many advocates for the tax increase, including the Indiana Chamber of Commerce and the Indy Chamber, have pushed for in the past.

Olthoff said she thinks a $2 per pack increase would be too steep to impose on Hoosiers, and that a $1 per pack increase would still help lower smoking rates, which is her goal. Nearly one in five Hoosiers smoke, which is higher than the national average.

Dr. Roberto Darroca, president of the Indiana State Medical Association, said increasing the cigarette tax is the “single most powerful tool” to reducing smoking.

“It’s time to take bold action for the health of Hoosiers,” Darroca said.

Mason Odle, with the Indiana Smoke-Free Alliance, spoke in opposition of the bill. The alliance represents a group of e-liquid manufacturers, retailers and wholesalers.

Odle said he didn’t think the tax the legislation would impose on e-cigarettes and e-liquids is on par with the tax on cigarettes. He suggested that it would raise the tax on a 60-milliliter bottle of e-liquid by $4.

Odle also argued that vaping helps cigarette smokers quit, so lawmakers shouldn’t be taxing e-cigarette products if the goal is to reduce smoking.

“If you’re going to tax e-liquids, you should be looking at taxing Nicorette Gum,” Odle said.

The House Public Health Committee did not vote on the bill. The committee is expected to amend the bill next week to address the concerns over how the new revenue would be distributed. If it passes out of the committee, it would go to the House Ways and Means Committee for further consideration.