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The Journal Gazette

  • Michelle Davies | The Journal Gazette Julia Klug, working at Macfood Mart in New Haven, sells cigarettes to customer Ron Shep­hard of New Haven on Thursday.

Saturday, March 11, 2017 10:22 pm

Cigarette-tax fight lighting up

Niki Kelly | The Journal Gazette

INDIANAPOLIS – Proponents of a substantial cigarette tax hike have a two-prong approach to gathering enough support for passage – it will reduce smoking and related health costs. And the money it raises will help improve roads.

But opponents also have a dual strategy – the tax increase will hurt businesses, especially those along the state’s borders.

And state lawmakers shouldn’t base a long-term road plan on revenue that is designed to drop in the future as fewer Hoosiers smoke.

This is among the biggest battles geared up for the end of the legislative session.

Senate budget steward Luke Kenley, R-Noblesville, said the pitch is to try to get people to quit smoking. But lawmakers then are trying to use the money to balance the budget.

"That’s kind of an inherent conflict," he said.

House Republicans already approved a $1 per pack increase in the state budget. Indiana’s rate right now is 99 cents per pack and was last raised in 2007.

Revenue from the higher tax would technically fund health care costs for low-income Hoosiers.

But the key is it frees up other General Fund money to be dedicated to roads – specifically about $300 million annually that Hoosiers pay in sales tax on gasoline.

The intertwining of health care policy with road funding didn’t work last year and is having some trouble in 2017 as well.

"It’s like anything else. If the price is unaffordable, the demand falls," said Ray McIntosh, president of McIntosh Energy in Fort Wayne.

His company has four convenience stores in Allen County and cigarette sales are its second-biggest sales category.

"Cigarettes are a huge revenue generator for our stores," McIntosh said, noting many customers come for cigarettes but also buy something else while in the store.

His New Haven store sees a fair amount of traffic from Ohio, where the tax is $1.60 per pack.

"I think the amount that they are wanting is excessive. It’s going to put us in a terrible disadvantage on the border states," McIntosh said. "Raising it a little is one thing but this is too much."

Indiana currently maintains about a dollar per pack advantage over Illinois and Michigan and 60 cents over Ohio.

Altria – the parent company of Philip Morris – is one of the world’s largest producers and marketers of cigarettes. The company been pushing hard with lawmakers and reporters to make the case against the tax hike.

The Indiana Petroleum Marketers and Convenience Store Association is also working against the increase.

Both argue the revenue source is uncertain; it harms retailers; burdens low-income earners more apt to smoke and creates a black market for smuggling.

Altria noted that adult smokers in Indiana are already paying $1.16 billion in state and federal taxes, including the master tobacco settlement payments.

The case looks like it is already working as House Speaker Brian Bosma signaled Thursday he is willing to scale back the increase. He specifically said a 60-cent jump would keep Indiana even with Ohio.

"We’re going to work closely with the Senate," he said. "We’ll make it work."

Any reduction in the tax hike would almost certainly mean a slower phase-in of shifting the sales tax on gasoline money to roads. Those dollars currently fund other items in the state budget – from schools to child protection.

"It’s not a popular concept in my caucus," Senate President Pro Tem David Long, R-Fort Wayne, said of the proposed cigarette tax increase. 

Sen. Sue Glick, R-LaGrange, is concerned for some of her constituents along the border. But mostly she thinks it doesn’t make sense to rely on a tax with a diminishing return to help shore up already-struggling road funding.

"We’ve got to be more creative," she said.

Sen. Dennis Kruse, R-Auburn, voted against the last cigarette tax increase. And he isn’t a fan this year.

"I’m not real excited about it," he said, noting some convenience stores could lose 40 percent in cigarette revenues.

He also acknowledged, though, that he would not vote against the state budget just because of the cigarette tax. And the budget is where Bosma said it belongs.

"If they use it for health, that’s good. People who smoke have extra health care costs," Kruse said. "And if people can quit that saves us money."

That message is being pushed by the Alliance for a Healthier Indiana, a coalition of health care and business leaders that coordinated a campaign last year to push for a $1.50 increase, as well as other changes.

Some of the money would go to increase Indiana’s cessation program, which has seen its funding dropped by lawmakers and isn’t in all 92 counties.

Bryan Mills, president of Community Health Network, said the health consequences of smoking are impacting Indiana’s budget. An increase in the tax not only results in some people quitting but means some youth never start.

Indiana’s smoking rate has fallen but not as fast as some other states, he said.

"I know that we can rally together and improve this," Mills said. "It gives us benefits on heart disease, infant mortality and cancer."

The Indiana Chamber of Commerce also supports the hike.

Kenley conceded the state has reduced the number of smokers the last 10 years but asked "can you document that health care costs have gone down? Because there is no question we are spending more."

Monique French, co-chair of Raise It For Health, said Hoosier businesses, public health experts and 70 percent of voters support the $1.50 increase.

"Significantly raising the price of cigarettes is the single most-effective way to reduce smoking, especially among youth, and it prevents Big Tobacco from minimizing the impact of the increase through price schemes, discounts and coupons," she said. "A $1.50 increase is a win for public health and a win for the economy."