In a reversal from most states, legislation has been prefiled in the Natural State to provide tax relief for Arkansans. Unfortunately, this tax relief package is expected be paid for by smokers and former smokers in the form of an excise tax on cigarettes and e-cigarettes, in addition to existing taxes.
Senate Bill 2 seeks to increase the standard state income tax deduction and create an earned income tax credit. In order to fund the deduction and tax credit, the legislation would impose “a special excise tax of twenty percent (20%) upon all retail receipts or proceeds derived from the sales of cigarettes.” This would be “in addition to all other taxes” that are currently imposed on cigarettes in the state. Further, the bill would create a new excise tax on electronic cigarettes and vapor products “that is equal to the total tax levied on tobacco products … other than cigarettes.” Currently, this tax rate is “68% of manufacturer’s invoiced selling price.”
There are multiple issues with the proposed legislation. Cigarette taxes are inherently regressive and disproportionately impact lower income persons. Further, e-cigarettes are tobacco harm reduction products and should not be subjected to excise taxes, which are often imposed to deter persons from using harmful products. Moreover, Arkansas spends very little in helping smokers quit and none of the revenue that would be generated by Senate Bill 2 is to be allocated to such programs.
According to the Centers for Disease Control and Prevention’s Behavioral Risk Factor Surveillance System survey, in 2019, 20.2 percent of Arkansan adults smoked tobacco cigarettes, amounting to 468,170 smokers in 2019.
Lower income Arkansans were more likely to be smokers in 2019. For example, 37.2 percent of Arkansas adults earning less than $15,000 a year reported smoking, compared to only 11.6 percent of Arkansans that had earned $50,000 or more. Further, 30.6 percent of Arkansans with less than a high school education reported smoking in 2019, compared to only 7.8 percent of Arkansans with a college degree.
When figuring a pack-per-day habit, adult smokers in Arkansas spent $2,237.45 per year on cigarettes, including $419.75 in state tobacco excise taxes. This is 15 percent of the income for a person earning $15,000 a year, and 4 percent of the income for a person earning $50,000 a year.
The 2019 findings in Arkansas are similar to a Cato Journal article, which found that 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.”
The legislation would also impose a tax on vapor products, despite these products being used by many adults to quit smoking tobacco cigarettes. A 2019 study in The New England Journal of Medicine found e-cigarettes to be twice as effective as nicotine replacement therapy in helping smokers quit. Indeed, a 2018 study found that in 2016, 10.6 million American adults were using e-cigarettes and vapor products, and 30.4 percent – or 3.2 million adults – had quit smoking cigarettes by using such products.
Deeply problematic is that the legislation seeks to generate additional revenue from smokers and former smokers, yet the Natural State allocates very little of existing tobacco monies on programs to help prevent and reduce combustible cigarette use. In 2019, Arkansas received an estimated $282.7 million in tobacco taxes and tobacco settlement payments. In the same year, the state spent only $12 million, or 4 percent, on funding tobacco control programs, including education and prevention. This amounts to $25.63 per smoker for the entire year.
Rather than imposing regressive taxes on cigarette and vapor products, lawmakers should look towards other revenue-generating sources to fund tax relief programs. Ironically, Senate Bill 2 would provide tax relief for lower income persons, all the while taxing those same persons for such relief.
Nothing in this analysis is intended to is intended to influence the passage of legislation, and it does not necessarily represent the views of Tobacco Harm Reduction 101.
Tobacco Harm Reduction 101: Arkansas https://www.thr101.org/arkansas
Tobacco Economics: Arkansas https://www.thr101.org/post/tobacco-economics-arkansas