Whitmer’s Proposed Tobacco Tax Hike Is Regressive, Risky, and Counterproductive

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Key Points:

• Legislative Overview: Governor Gretchen Whitmer’s FY 2027 budget proposal would substantially increase Michigan’s cigarette and tobacco taxes while imposing a steep new wholesale tax on nicotine products, including e-cigarettes and nicotine pouches.

• Core Tax Increases: The proposal raises the cigarette excise tax by $1.00 per pack – from $2.00 to $3.00 – and increases the tax on other tobacco products from 35 percent to 57 percent of wholesale price.

• New Nicotine Tax: A new 57 percent wholesale tax would apply to nicotine products, including vapor products and oral nicotine pouches – placing reduced-risk alternatives under one of the highest tax structures in the state.

• Stated Purpose: The administration argues the increases are necessary to stabilize Medicaid funding, though tobacco taxes are historically unstable and regressive revenue sources.

• Adult Smoking at Historic Lows: In 2024, 1.076 million Michigan adults (13.4 percent) were current smokers – among the lowest smoking rates recorded by BRFSS.

• Severe Income Disparities: Smoking remains heavily concentrated among lower-income residents. In 2024, 27.9 percent of adults earning $25,000 or less smoked, compared to 6.9 percent earning $50,000 or more – making low-income adults four times more likely to smoke.

• Severe Education Disparities: In 2024, 32.9 percent of adults without a high school diploma smoked, compared to 4.8 percent of college graduates – a 6.9-fold difference.

• Adult Vaping Growth: In 2024, 787,049 Michigan adults (9.8 percent) were current vapers – one of the highest recorded rates. Between 2023 and 2024 alone, vaping increased 15.3 percent.

• Vaping Disparities – Income: 13.7 percent of adults earning $25,000 or less were vaping, compared to 7.2 percent earning $50,000 or more – low-income adults were 1.9 times more likely to vape.

• Vaping Disparities – Education: 16.9 percent of adults without a high school diploma were vaping, compared to 4.9 percent of college graduates – lower-educated adults were 3.4 times more likely to vape.

• Harm Reduction Correlation: Between 2016 and 2024, smoking declined 34.3 percent (506,706 fewer smokers) while vaping increased 100 percent (406,849 additional adults), indicating substitution away from combustible cigarettes.

• Revenue Instability: After Michigan’s 2004 cigarette tax hike, revenues initially rose but declined by an average of 1 percent annually thereafter. By 2023, cigarette tax collections were $210.9 million lower than in 2004.

• Economic Impact of Smoking Declines: With annual per-smoker costs estimated at $73,712, Michigan’s smoking reductions translate into billions in reduced long-term smoking-related costs.

• Prevention Spending Gap: In 2024, Michigan collected $5.33 billion in tobacco tax revenue but allocated only $1.8 million – less than 1 percent – to cessation programs. For every $1 collected, less than $0.01 went toward helping adults quit.

• Equity Concerns: Because smoking and vaping are disproportionately concentrated among lower-income and less-educated adults, these tax increases would fall hardest on the most vulnerable populations.

• Bottom Line: Whitmer’s proposal relies on unstable, regressive taxation while imposing steep new costs on reduced-risk alternatives associated with declining smoking rates. Rather than punitive tax hikes, policymakers should prioritize sustainable funding mechanisms and evidence-based harm reduction strategies.

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Michigan Governor Gretchen Whitmer’s proposed FY 2027 budget would substantially increase taxes on combustible cigarettes and other tobacco products while imposing a steep new tax on tobacco harm reduction products, including vapes.

The administration argues these increases are necessary to “stabilize Medicaid funding” and protect access to health care for eligible Michiganders. While supporting health care funding is laudable, tobacco taxes are inherently regressive and historically unreliable sources of revenue. Moreover, tobacco harm reduction products have been shown to be significantly less harmful than combustible cigarettes and are associated with helping adults quit smoking. Subjecting these alternatives to draconian excise taxes designed to deter use risks undermining public health progress.

Under the FY 2027 proposal, Michigan’s cigarette excise tax would increase by $1, from $2-per-pack to $3-per-pack. The tax on other tobacco products, including pipe tobacco, smokeless tobacco, and snuff, would rise from 35 percent of the wholesale price to 57 percent. The proposal would also impose a new 57 percent wholesale tax on nicotine products, including e-cigarettes and nicotine pouches.

These increases would be deeply regressive. Low-income and lower-educated adults smoke at higher rates and spend a greater share of their disposable income on tobacco products.

According to the 2024 Behavioral Risk Factor Surveillance System survey conducted by the U.S. Centers for Disease Control and Prevention, an estimated 1.076 million Michigan adults aged 18 or older were currently smoking, or 13.4 percent of the adult population – among the lowest rates recorded by BRFSS.

Yet smoking remains heavily concentrated among lower-income and lower-educated adults. In 2024, 27.9 percent of adults earning $25,000 or less per year were currently smoking, compared to 6.9 percent of adults earning $50,000 or more. Low-income adults were four times more likely to smoke than higher-income earners. Since 2004, smoking rates among lower-income individuals have declined by only 0.9 percent annually on average, compared to a 3.7 percent average annual reduction among adults earning $50,000 or more.

Educational disparities are even more pronounced. In 2024, 32.9 percent of Michigan adults without a high school diploma or G.E.D. were currently smoking, compared to only 4.8 percent of college graduates. Adults without a high school education were 6.9 times more likely to smoke than college-educated individuals. Between 2023 and 2024, smoking rates among adults lacking a high school diploma increased by 14.6 percent, while rates among college graduates decreased by 14.3 percent.

Similar disparities exist among adults who vape. In 2024, an estimated 787,049 Michigan adults aged 18 or older were currently vaping – 9.8 percent of the adult population, one of the highest rates recorded. Between 2023 and 2024, adult e-cigarette use increased by 15.3 percent, representing an additional 110,330 adults vaping compared to the prior year.

Lower-income and lower-educated adults were also more likely to vape. Among adults earning $25,000 or less per year, 13.7 percent were vaping in 2024, compared to 7.2 percent of adults earning $50,000 or more. Low-income adults were 1.9 times more likely to vape than higher-income earners. Between 2023 and 2024, vaping among low-income adults increased by 21.9 percent, compared to a 4.9 percent increase among higher-income adults.

Education disparities mirror these trends. In 2024, 16.9 percent of adults without a high school diploma were vaping, compared to 4.9 percent of college graduates. Adults lacking a high school education were 3.4 times more likely to vape than college-educated adults. Between 2023 and 2024, vaping increased by 19 percent among adults without a high school diploma, compared to 6.5 percent among college graduates.

Beyond its regressive impact, the proposal also relies on an unstable revenue source. Tobacco tax revenues have steadily declined over time.

In 2004, Michigan increased the cigarette excise tax by $0.75 to $2.00 per pack, producing an immediate 28.1 percent increase in revenue – from $851 million in 2004 to over $1 billion in 2005. However, these gains were short-lived. Between 2004 and 2023, cigarette tax revenue declined by an average of 1 percent annually. By 2023, Michigan collected $640.1 million in cigarette tax revenue – $210.9 million less than in 2004.

The proposal also overlooks the role tobacco harm reduction products have played in declining smoking rates. Between 2016 and 2024, the percentage of Michigan adults who were currently smoking fell by 34.3 percent, representing 506,706 fewer adult smokers. During the same period, adult vaping rates increased by 100 percent, representing an additional 406,849 adults vaping.

According to WalletHub, the total annual cost per smoker in Michigan in 2024 was $73,712, including $3,737 in health care costs. With more than 53,000 fewer adults smoking, this translates to an estimated $37.4 billion reduction in total smoking-related costs, including approximately $1.9 billion in health care savings.

Rather than imposing excessive taxes on both combustible and reduced-risk products, Michigan lawmakers should ensure existing tobacco revenues are more effectively invested in cessation efforts. In 2024, Michigan collected $5.33 billion in tobacco tax revenue but allocated only $1.8 million – less than 1 percent – toward programs to help adults quit. For every $1 collected in tobacco taxes, the state spent less than $0.01 helping adults stop smoking.

Governor Whitmer’s proposed tax increases are regressive, fiscally unreliable, and risk discouraging the use of less harmful alternatives that are associated with Michigan’s significant declines in smoking. Policymakers should prioritize sustainable funding solutions and evidence-based harm reduction strategies rather than punitive tax hikes that disproportionately burden the most vulnerable residents.

Nothing in this analysis is intended to influence the passage of legislation, and it does not necessarily represent the views of Tobacco Harm Reduction 101.