Oregon voters will decide on a ballot measure to significantly raise taxes to fund healthcare-related programs in the November 2020 election. The initiative would unwisely increase cigarette and other tobacco taxes to pay for expanding a myriad of health-assistance programs contained in the state budget. While tax-and-spend activists will cheer this measure as a win for Oregon, misguided tax hikes will cause more hardship on struggling small businesses, consumers, and taxpayers.
The ballot measure in question is Measure 108 and would generate an estimated $175 million in additional revenue for the state annually. Specifically, it would significantly raise the cost of traditional tobacco products like cigarettes and cigars, and place a new tax on nicotine contained in less harmful e-cigarettes and vapor products. If passed by voters, the tax on cigarettes would rise from $1.33 to $3.33 per 20-pack, e-cigarettes and vapes would be slapped with a tax rate of 65 percent, and cigar taxes would double to $1.
For a pack-a-day user, they will need to pay an additional $730 annually to cover this added tax burden - an astounding tax hike that some people may not be able to afford.
Of course non-nicotine users won’t experience higher taxes, so should they care about this ballot measure if they don’t smoke? Given the numerous unintended consequences and falses promises of a higher cigarette tax, everyone should be concerned about this ballot measure.
While it is true that cigarette tax increases usually correspond with a short-term bump in revenue, after a few years revenue drops precipitously due to smuggling or declines in smoking rates. In fact, a 2013 study from
The National Taxpayers Union Foundation found 7 out of every 10 state-level tobacco tax hikes enacted between 2001 and 2011 resulted in lower-than-anticipated revenues. All too often, this meant additional levies were soon to follow. To that end, the same study found that 66 out of 96 tobacco tax hikes were followed by additional hikes within two years.
This is exactly what continues to happen in Oregon. Despite six cigarette tax increases since 1997, when the tax was 68 cents, the state only takes in slightly more revenue today compared to 23 years ago. This is common with increases to excise tax rates: the state overestimates the amount of revenue that would flow to the treasury. This makes excise tax revenue extremely unstable and difficult to predict over the long term. It is therefore concerning that the state would try to fund new programs with uncertain revenue streams such as an excise tax increase.
Additionally, high cigarette excise taxes lead to many unintended consequences, like cross-border illegal smuggling. A $2 tax increase would jump Oregon from the thirty-first highest statewide cigarette tax in the country to the fifth highest, and the highest west of the Mississippi. That rate would also make Oregon’s rate higher than all of its four neighbors, including six times higher than Idaho’s rate and double that of Nevada’s.
Finally, another area where this ballot language is particularly flawed is its inclusion of a new tax on vapor products and e-cigarettes–which are far less harmful than traditional cigarettes– at a 65 percent tax rate. It’s common for states to not have vapor taxes, or set them at very low rates to make using these products to quit smoking less expensive. A 65 percent tax rate would be one of the highest vapor taxes in the nation.
If the goal of this ballot measure is to make people less likely to smoke, it flies in the face of science to make smoking cessation more expensive.
Many are concerned about the prevalence of vaping in our society, but scientific literature is coalescing around the fact that vaping is significantly less harmful than traditional combustible cigarettes. A recent study shows vaping can reduce the harm associated with smoking by as much as 95 percent, and can be as much as twice as effective as gum or patches to help users quit. It is growing clearer that vapor products are an innovative and effective bridge for smokers transitioning toward significantly less harmful alternatives. For years, government officials have taken steps to reduce the prevalence of tobacco usage, and the free market has produced a solution to address this serious problem.
The FDA also recognizes that these new products are less harmful than combustible cigarettes and considered to be tobacco harm reduction, based on a reasonable premise that there are significant benefits (for individual health, government health care programs, and the economy) to providing smokers with innovative alternative means of getting the nicotine they desire. It is therefore ill-advised to limit access to less risky alternatives for consumers attempting to kick their cigarette habit.
Healthcare funding is important, particularly in the midst of a global pandemic. However, funding important programs using unstable, often declining revenues from excise taxes is a poor mechanism over the long term. Not only is it a big tax hike, but it is a poorly designed one at that. Voters - smokers and nonsmokers alike - should be wary of tax hikes and its potentially harmful effects on the budget.