July 3, 2018

In November, Montana voters will consider a ballot initiative to increase the tax on all tobacco products, including cigarettes, smokeless tobacco, electronic cigarettes and vaping devices.

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The initiative proposes a “$2.00 increase per pack of cigarettes” to a total of $3.70. It would increase the tax on most snuff to “83% of wholesale or $3.70 per 1.2 ounces.” The tax rate on other tobacco products would increase “by 33% of the wholesale price,” with a new tax imposed on e-cigarettes and vaping devices.

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The new funds are supposed to eliminate the sunset date for the state’s expanded Medicaid services, which is expected to end June 30, 2019. Remaining revenue would be used for “health-related programs, including costs for Montana’s current Medicaid program; veterans’ services; smoking prevention and cessation programs; long-term care services for seniors and people with disabilities.”

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Although intended as a means to raise revenue, cigarette taxes often drive consumers to purchase cigarettes in neighboring states or on black markets. Montana’s current cigarette tax of $1.70 a pack is already higher than neighboring states. Due to onerous taxes, Montana ranked 11th among the states in cigarette smuggling in 2015, according to the Tax Foundation. Neighboring states—Idaho, North Dakota, and Wyoming—ranked 46th, 38th and 42nd, respectively.  Montana already ranks high for cigarette smuggling with current taxes. If the initiative is successful, an influx of smuggled tobacco will likely follow—reducing tax revenue and magnifying the state’s budget problems.

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Cigarette taxes are also highly regressive and disproportionately impact lower-income smokers. From “2010 to 2011, smokers earning less than $30,000 per year spent 14.2 percent of their household income on cigarettes, compared to 4.3 percent for smokers earning between $30,000 and $59,999 and 2 percent for smokers earning more than $60,000” according to Cato Journal.

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The Montana proposal comes at a time when cigarette smoking rates are steadily declining. In 2017, only 18.5 percent of Montanans smoked, down from 24.1 percent in 1991, according to the United Health Foundation. One factor in declining smoking rates is the introduction of tobacco harm reduction (THR) products, including smokeless tobacco, e-cigarettes, and vaping devices. Imposing taxes on THR products similar to those on tobacco products undermines the public health gains THR products offer.

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THR products deliver nicotine without the harmful constituents in combustible cigarette smoke. Smokeless tobacco use has been found to be “at least 98 percent safer than smoking,” according to Dr. Brad Rodu, a senior fellow at The Heartland Institute, who has researched smokeless tobacco for more than 20 years. 

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Electronic cigarettes and vaping devices are also less harmful than combustible cigarettes. Several public health groups have found that e-cigarettes are safer than cigarettes, including Public Health England, the Royal College of Physicians,  Cancer Research UK and the American Cancer Society. Some groups have even urged the use of e-cigarettes “to aid in smoking cessation.”

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There is also evidence that e-cigarettes and vaping devices could help states address budget deficits by reducing the costs of smoking-related illnesses. J. Scott Moody, chief executive officer and chief economist at State Budget Solutions, examined the associated costs of tobacco cigarette smoking on Medicaid spending and estimated that if electronic cigarettes had been adopted in place of tobacco cigarettes, savings to Medicaid expenses could have amounted to $48 billion by 2012.

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A 2017 policy study by the R Street Institute analyzed a smaller number of Medicaid recipients switching from combustible cigarettes to e-cigarettes. Associate Fellow Richard B. Belzer used a sample size of “1% of smokers [within] demographic groups permanently” switching. Using this analysis, Belzer estimates that Medicaid savings “will be approximately $2.8 billion per 1 percent of enrollees,” over the next 25 years.

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Tobacco tax increases boost illegal markets and will all but ensure that Montana remains the regional leader in cigarette smuggling. These taxes disproportionately harm lower-income smokers, and are minimally effective at curbing tobacco consumption. The Montana initiative would increase taxes on THR products, undermining public health gains and increasing state health care costs. Rather than punish smokers and individuals trying to quit, Montanans should embrace THR products and implement comprehensive tax reforms to address state revenue shortfalls.

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Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute or Tobacco Harm Reduction 101.