Oregon Measure 108: Tobacco and E-Cigarette Tax Increase for Health Programs
Summary:
Oregon’s Measure 108 would increase the tax on cigarettes from $1.33 per pack to $3.33, institute an e-cigarette tax at 65 percent of the wholesale price, and a cigar tax of 65 percent of wholesale price not to exceed $1.00 per cigar.
Revenues from these taxes first go to cover the cost of enforcing and collecting the tax, and remaining revenues go to the Oregon Health Authority for medical and healthcare-assistance programs.
Fiscal Impact:
The legislative analysis estimates between $115 million and $160 million per year in total additional revenue.
Proponents’ Arguments For:
Proponents argue that Oregon has one of the lowest tobacco taxes in the country, while tobacco is the number one cause of preventable death in the state—leading to nearly 8,000 deaths per year. One-fourth of Oregon high schoolers say they have vaped and that makes them three times more likely to start smoking. Supporters say that the tax increases provided by Measure 108 would prevent 19,000 Oregon youth from starting smoking, and among adults, the taxes would prevent nearly 12,000 premature deaths by reducing smoking and vaping. Oregon taxpayers already suffer $1.5 billion per year in health care costs from tobacco-related illnesses.
The money from the new taxes would go to the Oregon Health Plan, smoking prevention, and programs to help people quit. The Oregon Health Plan covers more than one million Oregonians and could grow by 30 percent due to the Coronavirus pandemic.
Opponents’ Arguments Against:
There is no official opposition to Measure 108. Statements against the tax increases have argued they would hurt small businesses and drive people to switch from vaping to much more harmful traditional cigarettes.
Discussion:
Cigarette taxes have been a popular policy tool to discourage smoking for many years. However, recent scholarship challenges the extent to which cigarette taxes actually reduce the smoking rate. The authors of this study suggest that a 100 percent tax rate would be required to reduce smoking by just 5 percent, while Oregon state officials have suggested that would reduce smoking by 80 percent, despite the fact no actual tobacco tax increase in the past has had more than small effects on smoking rates.
People base their decisions about smoking and vaping on many factors besides taxes and price. Similar to other goods such as alcohol and marijuana, a large percentage of the overall volume of the product is consumed by a relatively small percentage of people who are likely to continue buying the product despite price increases. Instead, higher tobacco taxes would likely push people to the already extensive black market for cigarettes.
It is now widely accepted that e-cigarettes represent a significantly lower health risk than cigarettes themselves and help with smoking cessation, as they provide a similar experience but deliver far less harmful chemicals. Research has shown that taxes reduce the difference between the two options and lead to more choosing the more dangerous option of smoking traditional cigarettes.
Meanwhile, the argument that vaping is a gateway for youth to smoking tobacco is not born out by the data—youth smoking is at a record low in Oregon and has continued to decline even as youth vaping has increased.
This tax would undoubtedly raise revenue. But accounting for the likely increase in cigarette smuggling, falling smoking rates, and reduced uptake of e-cigarettes, the state’s revenue estimates are unlikely to fully materialize. Data show that hiking tobacco taxes leads to a momentary spike in revenue that rapidly declines. So the effects on state budgets and targeted programs are temporary, but the highly regressive effects of the tax on consumers, hitting the poor much harder than the wealthier, remain.
Targeting a narrow category of products with a high tax to fund universal programs creates significant budget problems if that tax revenue declines. The twin purposes of raising revenue and reducing tobacco use are in inherent conflict. The more people quit or reduce their tobacco use, the less revenue there would be to fund the Oregon Health Plan and other programs that would not see shrinking demand at the same time.
According to a 2019 report by the Urban Institute:
“Revenue gains from sin taxes are usually short-lived and can create longer-term fiscal challenges for states if revenue growth from sin taxes deteriorates over time or requires higher tax rates to maintain a certain level.”
Ongoing universal programs such as preschool are best funded through taxes that are low and broad-based. Unfortunately, cigarette taxes are especially regressive, with smoking rates highest in households that earn less than $35,000 per year.
The most problematic part of the measure from a public health standpoint is the high wholesale tax applied to e-cigarettes. As previously stated, these products have been shown conclusively to be less toxic than cigarettes and are more effective in helping smokers quit than traditional nicotine replacement therapies. Raising taxes on these products disincentivizes smokers from switching to a less harmful alternative and could cause some vapers to relapse to smoking. A study funded by the National Institutes of Health (NIH) published in February showed that for every 10 percent increase in e-cigarette prices, the use of traditional cigarettes rose by 11 percent.
However, one bright spot is the provision to ensure that products which the FDA deems are safer or less toxic than traditional cigarettes would be taxed at a lower rate. Safer nicotine alternatives to cigarettes should always be taxed at substantially lower rates than combustible cigarettes, as they do not place burdens on non-users in the form of higher health care costs.
Voters Guides to Other Consumer Freedom 2020 Ballot Initiatives
Voters’ Guides to 2020 Ballot Initiatives on Other Policy Topics