Lawmakers in New Mexico introduced legislation that would increase the state’s cigarette and other tobacco products (OTP) taxes. The bill would also apply the OTP tax to e-cigarettes. Revenue from the proposed legislation would be distributed to the public school fund in 2020.

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Although taxes on cigarettes are used to discourage smokers and promote public health, they’re often regressive and foster black markets. More troublesome is the extreme tax on vaping products, which will negatively impact public health.

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The proposal aims to increase the excise tax on cigarettes from $1.66 for a pack of 20 cigarettes, to $3.16 per pack. The OTP tax would increase to 76 percent of the product value, from its current rate of 25 percent.

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It is well known that cigarette taxes are highly regressive and disproportionately impact lower-income persons. A Cato Journal article found that from “2010 to 2011, smokers earning less than $30,000 per year spent 14.2 percent of their household income cigarettes.” Smokers that earned between $30,000 and $59,999 spent 4.3 percent, and those earning more than $60,000 spent 2 percent of their income on cigarettes.

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Furthermore, increased taxes on cigarettes lead to black markets. According to the Tax Foundation, New Mexico ranked fourth in the country for cigarette smuggling in 2015. New Mexico already has higher smuggling rates than its neighboring states including Colorado and Texas, which ranked 21st and 8th, respectively. Arizona ranked 2nd, with a $2.00 per pack excise tax. The proposed legislation will make New Mexico’s cigarette tax the highest in the region.

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Another troubling aspect of the bill is the application of an extreme excise tax on e-cigarettes, a tobacco harm reduction (THR) product. Research consistently finds that it is the smoke in combustible cigarettes that produces the most harms associated with cigarettes. E-cigarettes provide smokers nicotine in a vapor that is significantly less harmful, as found by numerous public health organizations including Public Health England, the Royal College of Physicians, the National Academies of Sciences, Engineering, and Medicine, and the American Cancer Society.

E-cigarettes are also useful tools to help people quit smoking, as indicated in a study that found e-cigarettes to be “twice as effective as nicotine replacement at helping smokers quit.”

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More importantly, these products can actually help save states’ money by reducing health care costs. Analyzing a scenario where all smoking Medicaid recipients switched from combustible cigarettes to e-cigarettes found states could have saved $48 billion in 2012. A smaller analysis examined one percent of the Medicaid population switching, finding that Medicaid savings would “be approximately $2.8 billion per 1 percent of enrollees” over the next 25 years.

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Although most states raise tobacco taxes in an effort to deter people from smoking, this proposal in New Mexico will not allocate any funding for cessation efforts. In 2018, New Mexico received $131.8 million “in tobacco settlement payments and taxes.” The state only allocated $5.7 million on tobacco education and prevention in the same year. Despite the fact that New Mexico was one of many states that settled with tobacco companies in the Master Settlement Agreement to recover the health care costs associated with smoking, the state uses this funding for other legislative items. In 2000, New Mexico received $769 in tobacco settlement payments, yet $748 million was “appropriated or withdrawn to meet legislative priorities.” New Mexico has also bonded out future tobacco payments, “with an outstanding balance of 417 million that depend on cigarette tax revenues for repayment.”

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Rather than relying on cigarette smokers and vapers to fund public education, New Mexico should reform how it currently spends tobacco settlement payments and taxes. Lawmakers should also avoid extreme taxes on THR products, as research increasingly finds these products to be an effective and significantly safer alternative to combustible cigarettes.

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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.