$2 per pack cigarette tax is one proposal for Indiana’s budget woes

INDIANAPOLIS — Indiana is staring at a $2.4 billion shortfall, meaning proposed state spending exceeds anticipated income by billions of dollars.

But there is one way lawmakers are hoping to bridge the gap: Have smokers cough up the difference.

A proposal being floated around the Indiana Statehouse would effectively double the tax rate of cigarettes in Indiana. This means smokers could pay $2 in taxes on every pack of cigarettes.

Senate and House Democrats have roundly endorsed the measure as a way to increase state revenue while sparing deep cuts to public education or vital services like Medicaid. Supporters of the increase also point out that the cigarette tax hasn’t been touched in Indiana for nearly 20 years.

State Rep. Gregory Porter (D-Indianapolis) called a cigarette tax increase “way overdue” and said it could add $800 million to the budget. It wouldn’t cover the $2.4 billion shortfall, but it’d eat up a sizable chunk.

Smokers who use vapes or electronic cigarettes wouldn’t be spared the increased tax. The proposal includes increasing tax on electronic cigarettes from the current 15% to 31%, doubling the tax rate. Vaping closed system cartridges would be hit even harder as the tax increase would jump from 15% to 53% under the proposal.

The cigarette tax is just one of the so-called “sin taxes” put forward by Indiana Democrats as a solution to the budget woes. Also proposed is increasing taxes on alcohol sales or legalizing marijuana to create an entirely new tax stream.

So far, all of these proposals have failed to find enough support within the Republican majority. But with the forecasted shortfall being larger than anticipated, Republican lawmakers said anything and everything is back on the table.

”This is a much worse condition than we had anticipated,” said State Sen. David Niezgodski (D-South Bend) on the $2.4 billion forecasted shortfall.

On that, both sides of the aisle agreed.

“In the 21 years I’ve been here, and I was here during the recession in ’08, and ’09 budget, this one scares me a lot more than that,” said State Sen. Ryan Mishler (R), Chair of Senate Appropriations.

“Back then, if you remember, we had federal money to backfill it, we don’t have any federal money to backfill it. This is all on us,” Mishler added.

The Indiana Chamber of Commerce backs the cigarette tax increase and hopes Republican lawmakers reconsider the measure.

“We urge lawmakers to put the increase in the state budget – both for the positive impact on the health of Hoosiers who smoke and the additional revenue,” said Vanessa Green Sinders, president and CEO of the Indiana Chamber of Commerce.

The American Cancer Society Cancer Action Network argued a tobacco tax increase would not only benefit the Hoosier state’s wallet but the health of its citizens.

“Increasing tobacco taxes is one of the most effective ways to reduce tobacco use, especially among kids,” the organization said. “Additionally, a well-funded, fact-based tobacco control program is needed to counteract the $293.3 million per year that tobacco companies spend to market their deadly and addictive products in Indiana. At a time when tobacco use is skyrocketing among youth, we must take action that would generate revenue, protect kids and save lives.”

Whatever the solution, lawmakers only have until April 29 to finalize a budget and reel in the multibillion-dollar shortfall. Whether the cost of this revenue-to-expense gap falls upon Hoosier smokers, Hoosier children or the nearly 2 million Hoosiers who rely on Medicaid remains to be seen.