Friday, January 31, 2020

Beshear wants cigarette-tax hike, new tax on electronic cigarettes

By Melissa Patrick
Kentucky Health News

To pay for such things as a teacher-pay increase and 350 news social workers to fight child abuse and neglect, Gov. Andy Beshear wants to raise the tax on all tobacco products and add a new tax to electronic cigarettes, the only tobacco product in Kentucky that does not have an excise tax.

Gov. Andy Beshear makes his budget speech. (Image from KET)
The Democratic governor's taxes would have to be approved by the Republican-controlled General Assembly. Republicans often balk at new taxes, but comments from several in the GOP leadership suggest that some version of the e-cigarette tax will pass, and that is much less likely for the other tobacco-related ones.

Beshear's proposal calls for a 10-cent tax increase on cigarettes, to $1.20 per pack from $1.10, and a tax on e-cigarettes at 10 cents per fluid milliliter. His office said eight of the 19 states that tax so-called "vaping" products do so with a per-milliliter tax instead of a percentage of of the sales price.

It would also raise the tax on snuff and chewing tobacco from .19 cents per unit to .38 cents per unit and would raise the tax on other tobacco products, like cigars, from 15 percent on the average wholesale price to 30%, which would make the tax rates on other tobacco products the same as the proposed $1.20 cigarette rate

These additional taxes would raise $50.3 million in the upcoming fiscal year, which begins on July 1, and $43.9 million the following fiscal year -- for a total of $94.2 million in the next biennium, according to Beshear's 2020-2022 Executive Budget Revenue Proposal.

If the proposed hike on cigarettes were to pass, it would place Kentucky at the same rate as West Virginia, but would be noticeably higher than Indiana, Missouri, Tennessee and Virginia. It would also bring Kentucky closer to the two bordering states with the highest rates, Ohio at $1.60 per pack and Illinois at $2.98 per pack. The national average is $1.81 per pack.

In 2018, lawmakers increased the cigarette tax by 50 cents, to $1.10 per pack.

Ben Chandler, president and CEO of the Foundation for a Healthy Kentucky, praised the governor's proposals to raise tobacco product taxes, while also noting the health savings that would result from them.

"In addition to raising revenue on one side of the budget, they reduce health care and business costs and increase employee productivity on the other," Chandler said in a news release. "We know they're effective: the recent cigarette tax hike raised $140 million in new revenue its first year; at the same time, Kentuckians bought 36 million fewer packs of cigarettes."

Rep. Steve Rudy, chair of the House budget committee, said the most likely taxes to pass are those on electronic cigarettes, because “We’re trying to curtail this. . . . I’ve had a lot of school superintendents and teachers tell me it’s becoming an epidemic in the schools.”

Between 2017 and 2019, e-cigarette use more than quadrupled among the state's middle-school students and nearly doubled among its high-school students, with one in four high schoolers and one in five middle schoolers reporting monthly use; and one in 10 high school students reporting daily use.

Sen. Chris McDaniel, chair of the Senate Appropriations and Revenue Committee, more cautiously said he needed to examine all of the components of Beshear's proposal before deciding how to proceed, but said he was open to looking at it.

"Any tax needs to be evaluated in the confines of its total impact," he said. "Since the last [cigarette] tax, we've seen a decline in smoking in the commonwealth. We know we've had a bit of an impact there. And we're going to take a look at it as part of the whole."

Senate Majority Floor Leader Damon Thayer said, "I think a tax on vaping is something that needs to be considered. I don't think it should be as high as the tax on cigarettes, but I think it probably should be higher than the current 6% sales tax. So I think there is probably some momentum towards getting something done on that."

Thayer explained that he didn't think they should be taxed the same amount because they are "not the same product" and added that while it's important to work toward decreasing the youth vaping epidemic, it's also important to recognize "there is evidence that vaping helps addicted adult smokers wean themselves off traditional cigarettes."

A 700 page U.S. Department of Health and Human Services report  released Jan. 23 titled, "Smoking Cessation, A Report of the Surgeon General" says more research is needed before we can conclusively make the claim that e-cigs help people stop smoking.

"In summary, the evidence is inadequate to infer that e-cigarettes, in general, increase smoking cessation; factors contributing to the uncertainty include the changing characteristics of e-cigarettes, the many different contexts in which they are used, and the limited number of studies conducted to date," says the report.

As for the 10 cent hike in the cigarette tax, Thayer said, "It's too soon to talk about that."

Rep. Jerry Miller
A bill to tax e-cigarettes in Kentucky has already been posted in the House Appropriations & Revenue committee, which is chaired by Rudy.

House Bill 32, sponsored by Rep. Jerry Miller, R-Louisville, would impose a 27.5% excise tax on e-cigarettes and other tobacco products that are currently taxed at 15%, making them the same percentage increase that was applied to the cigarette tax.

The bill's fiscal note shows that increases in the excise tax and the sales tax, which will result from the increased prduct price, and the initial floor stocks tax would result in $44.7 million in the first fiscal year and $49.4 million in the second, for a total of $94.1 million.

"I believe the tax bill will move out of the House, I feel pretty confident about that," Miller said. "We are working on modifying it to make sure it passes the Senate."

He said it was helpful that the governor had included an e-cig tax in his revenue proposal, noting that Beshear told him after his Jan. 14  budget address that he was supportive of his bill and that he even liked his bill better.

Miller said that was likely because his proposed e-cig tax would generate more money than the governor's proposal.  "Whereas his is 20 million-ish, mine is in the 30 million range," he said.

Asked if he was willing to compromise the 27.5%, he said, "As I tell people, I don't pass perfect bills, I pass the best bills that can pass and I'm going to get the best bill I can pass through the Senate and onto the governor's desk."

Miller has also filed HB 69, which would further regulate e-cigarettes.

Miller unsuccessfully sponsored an e-cigarette tax bill in the 2019. In 2018, an e-cig tax was included in legislation that raised the tax on traditional cigarettes, but was removed in the Senate just before final passage and after lobbying by Altria Group, the largest tobacco company and 35% owner of Juul Labs, the largest e-cig company.

A recent Kentucky Health Issues Poll found that 75% of Kentucky adults would support such a tax.


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