$2 cigarette tax added into state budget

INDIANAPOLIS — Tobacco products are set to be more heavily taxed in Indiana as lawmakers scramble to reel in a projected $2.4 billion shortfall in the state’s budget.

With state spending set to exceed incoming revenue by billions of dollars, Republican lawmakers have reconsidered a solution previously pushed by Democrats: a long-overdue increase to Indiana’s cigarette tax.

On Wednesday, Governor Mike Braun and several Republican legislative leaders introduced the finalized version of the state’s 2025 budget. The budget included the first tax hike on cigarettes in nearly 20 years.

Hoosier smokers can expect to pay $2 per pack in taxes on cigarettes. This is roughly double the current rate. All tobacco products will see an increased tax in Indiana, not just cigarettes. Users of vapes, e-cigarettes and chewing tobacco won’t be spared from shelling out roughly double the rate in taxes.

Republican leaders previously shied away from the Democrats’ suggestion of increasing tobacco taxes in Indiana but came back to the table after staring down a $2.4 billion shortfall.

“Along with the revenue comes a pretty good public policy that is going to help persuade people either to not start smoking or stop smoking at the same time,” said State Sen. Rodric Bray, (R) Senate President Pro Tem. “So I think everybody expects that number to decrease over time, but that’s because we’ll have fewer smokers.”

But the estimated $400 million in revenue from the tobacco tax increase is only a start to bridging the $2.4 billion gap.

The finalized budget includes a bevvy of cuts, with government offices and agencies being forced to tighten their belts. The Indiana Economic Development Corporation was one of the departments singled out by Braun and company for heavy cuts.

Republican leaders said the finalized budget cuts capital by one percent, cuts general government spending by one percent and cuts higher education by one percent.

“When times get a little tough, it’s when the best and the leanest are prepared to take more market share,” said State Rep. Todd Huston, (R) House Speaker. “For us, market share is population and economic growth. Between SB1 and this budget, that’s what we’ll continue to lean into.”

But not everything is facing the chopping block. Republican leaders said the Department of Child Services, Family & Social Services Administration, and the Indiana Department of Correction will be fully funded.

As for education funding, $954 million are allocated to education. However, $93 million of that sum will go towards expanding school choice vouchers to make them universal.

The Republican leaders also said the massive shortfall will not change their plans to decrease the individual income tax rate.

While the budget must be finalized by April 29, Republican lawmakers hope to push through the finalized budget Thursday night. While many Indiana Democrats were happy with the inclusion of the cigarette tax, some expressed apprehension about throwing support behind this latest budget iteration.

“The most troublesome part is only giving $40 million to local public health initiatives, even though we’re going to ‘Make Indiana Healthy Again,” said State Rep. Gregory W. Porter (D-Indianapolis).

Reactions

The Indiana Chamber of Commerce weighed in on the $2 per pack increase in the cigarette tax. The full statement can be viewed below:

“With today’s announcement of an increase in the cigarette tax, the first in over 17 years, we are taking the necessary steps to create healthier Hoosiers and slow the growth of Medicaid while also generating additional revenue. We also applaud state leaders for taking the additional action of raising the tax on vaping and other tobacco products – to send a message across the board about the perils of using tobacco. A healthy state is good for business. Reducing our smoking levels will increase employee wellness, lower healthcare costs for employers and reduce absenteeism in the workplace. We feel so strongly about these goals that we made healthy and prosperous communities and citizens one of the six main pillars of our Indiana Prosperity 2035 vision plan. The Indiana Chamber has been advocating for an increase in the cigarette tax for nearly 15 years. We urge the Indiana General Assembly to pass the budget containing this much-needed action and Governor Braun to sign it into law. This is clearly the right move for the state.“