Democratic governor wants cigarette-tax hike, new tax on electronic cigarettes, not as much as one Republican’s bill

Gov. Andy Beshear makes his budget speech. (KET image)

By Melissa Patrick
Kentucky Health News

To pay for such things as a teacher-pay increase and 350 news social workers to fight child abuse and neglect, Gov. Andy Beshear wants to raise the tax on all tobacco products and add a new tax to electronic cigarettes, the only tobacco product in Kentucky that does not have an excise tax.

The Democratic governor’s taxes would have to be approved by the Republican-controlled legislature. Republicans often balk at new taxes, but comments from several leading GOP members suggest that some version of the e-cigarette tax will pass.

They are more skeptical of Beshear’s proposed 10-cent tax increase on cigarettes, to $1.20 per pack from $1.10.

In his budget speech to the General Assembly, Beshear proposed a tax on e-cigarettes at 10 cents per fluid milliliter. His office said eight of the 19 states that tax so-called “vaping” products do so with a per-milliliter tax instead of a percentage of of the sales price.

The plan would also raise the tax on snuff and chewing tobacco to 38 cents per unit, from 19 cents,  and would raise the tax on other tobacco products, such as cigars, from 15 percent of the average wholesale price to 30%, which would make the tax rates on other tobacco products effectively the same as the proposed $1.20 cigarette-tax rate.

The higher tobacco taxes would raise $94.2 million for the two-year budget: $50.3 million in the fiscal year that begins July 1, and $43.9 million the following fiscal year, apparently presuming that the higher tax will decrease consumption.

If the cigarette tax were to pass, it would place Kentucky at the same rate as West Virginia, but would be noticeably higher than Indiana, Missouri, Tennessee and Virginia. The bordering states with the highest rates are Ohio, $1.60, and Illinois, $2.98. The national average is $1.81.

In 2018, Kentucky lawmakers increased the cigarette tax by 50 cents, to $1.10 per pack.

Ben Chandler, president and CEO of the Foundation for a Healthy Kentucky, praised the governor’s proposals to raise tobacco taxes, noting the health savings that would result from them.

“In addition to raising revenue on one side of the budget, they reduce health-care and business costs and increase employee productivity on the other,” Chandler said in a news release. “We know they’re effective: the recent cigarette tax hike raised $140 million in new revenue its first year; at the same time, Kentuckians bought 36 million fewer packs of cigarettes.”

Rep. Steve Rudy, chair of the House budget committee, said the most likely taxes to pass are those on electronic cigarettes, because “We’re trying to curtail this. . . . I’ve had a lot of school superintendents and teachers tell me it’s becoming an epidemic in the schools.”

Between 2017 and 2019, e-cigarette use more than quadrupled among the state’s middle-school students and nearly doubled among its high-school students, with one in four high schoolers and one in five middle schoolers reporting monthly use; and one in 10 high school students reporting daily use.

Sen. Chris McDaniel, chair of the Senate budget committee, more cautiously said he needed to examine all of the components of Beshear’s proposal before deciding how to proceed, but said he was open to looking at it.

“Any tax needs to be evaluated in the confines of its total impact,” he said. “Since the last [cigarette] tax, we’ve seen a decline in smoking in the commonwealth. We know we’ve had a bit of an impact there. And we’re going to take a look at it as part of the whole.”

Senate Majority Floor Leader Damon Thayer said it’s too soon to talk about the cigarette tax, but “I think a tax on vaping is something that needs to be considered. I don’t think it should be as high as the tax on cigarettes, but I think it probably should be higher than the current 6 percent sales tax. So I think there is probably some momentum towards getting something done on that.”

Thayer said he didn’t think e-cigs should be taxed likewise because they are “not the same product” and added that while it’s important to work toward decreasing the youth vaping epidemic, it’s also important to recognize “there is evidence that vaping helps addicted adult smokers wean themselves off traditional cigarettes.”

A 700 page U.S. Department of Health and Human Services report says more research is needed before we can conclude that e-cigs help people stop smoking.

“The evidence is inadequate to infer that e-cigarettes, in general, increase smoking cessation; factors contributing to the uncertainty include the changing characteristics of e-cigarettes, the many different contexts in which they are used, and the limited number of studies conducted to date,” says the report, titled, “Smoking Cessation, A Report of the Surgeon General.”

Rep. Jerry Miller

A bill to tax e-cigarettes in Kentucky has already been posted in the House Appropriations & Revenue Committee, chaired by Rudy.

House Bill 32, sponsored by Rep. Jerry Miller, R-Louisville, would place a 27.5% excise tax on e-cigarettes. It would apply the same rate to other tobacco products, which are now taxed at 15%, thus raising the levy by the same percentage that the cigarette tax was increased in 2018.

“I believe the tax bill will move out of the House, I feel pretty confident about that,” Miller said. “We are working on modifying it to make sure it passes the Senate.”

He said it was helpful that Beshear had proposed an e-cig tax, noting that the governor told him after his speech that he liked Miller’s bill even better. He said that was likely because his proposal would generate more money than the governor’s. “Whereas his is 20 million-ish, mine is in the 30 million range,” he said.

Asked if he was willing to compromise the 27.5% rate, he said, “As I tell people, I don’t pass perfect bills, I pass the best bills that can pass and I’m going to get the best bill I can pass through the Senate and onto the governor’s desk.”

Miller has also filed HB 69, which would further regulate e-cigarettes. Heunsuccessfully sponsored an e-cigarette tax bill in the 2019. In 2018, an e-cig tax was included in legislation that raised the tax on traditional cigarettes, but was removed in the Senate just before final passage and after lobbying by Altria Group, the largest tobacco company and 35% owner of Juul Labs, the largest e-cig company.

A recent Kentucky Health Issues Poll found that 75% of Kentucky adults support such a tax.

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