Tobacco taxes sound good, but hurt the poor and increase smuggling
This op-ed piece appeared in the Hutchison Leader on June 2, 2021.
Our lawmakers are on a mission to end what they have termed a public health crisis — tobacco use.
To this point, Gov. Tim Walz proposed tax hikes on cigarettes and vaping products. This legislative session, similar bills were introduced to raise taxes on tobacco products and ban flavored tobacco, including e-cigarettes and other vaping products. But are these proposals the magic bullet to tobacco use that lawmakers proclaim them to be? A new report by the Center of the American Experiment shows otherwise.
Smoking and tobacco use has generally been on a decline in Minnesota. Between 2000 and 2020, cigarette use declined by 90.1 percent among high school students and 78 percent for middle school students. Even after accounting for e-cigarettes, reported use of tobacco products among the youth was significantly down in 2020 — 20.5 percent among high school students and 4.1 percent among middle school — compared to 2000s rates of 38.7 percent and 12.6 percent. This is a trend that has been observed nationwide and even among adults, and it bears very little correlation to cigarette tax hikes.
The truth is that tax hikes have very little impact on tobacco use because regular and long-term use is much more common among disadvantaged groups who are less likely to respond to high prices and therefore less likely to quit. People with mental health issues, for instance, have two times the statewide average smoking rate in Minnesota.
High taxes, however, encourage smuggling as tax differentials present profit opportunities. In 2018, Minnesota had the fifth highest cigarette tax rate per pack in the country and ranked fifth on cigarette smuggling — 36 percent of cigarettes smoked in Minnesota were smuggled in from other states.
Currently, the total tax rate on cigarettes in Minnesota — $3.673 — is about eight times higher than that of North Dakota — 44 cents. It would be irrational for our policymakers to believe a tax hike won’t push Minnesotans into buying their cigarettes in North Dakota or any of our other three neighbors that happen to have lower excise taxes. That is what happened after Minnesota raised the cigarette excise tax in 2013. Border communities saw a significant decline in cigarette sales as well as loss of sales in non-tobacco products that accompany tobacco products. Additionally, Minnesota has some of the highest taxes on vaping products, raising them further would warrant a similar outcome.
Even more importantly, tobacco taxes hurt the poor the most as they spend a higher proportion of their income on tobacco products and have higher rates of tobacco use. In 2018, Minnesotans with a household income of $35,000 or less had a smoking rate of 24.1 percent compared to 8.7 percent among people with a household income of over $75,000. And according to the 2021 Tax Incidence tax study, in 2018, the 10 percent of Minnesotans with the lowest incomes paid an effective tax rate of 2.77 percent on tobacco products compared to the 0.05 percent paid by the 10 percent with the highest incomes. Policymakers risk further burdening low-income individuals by raising taxes on tobacco.
If the goal is indeed protecting public health, lawmakers need to rethink policies that merely harm businesses but have no discernible effect on tobacco use while they burden smokers with high taxes — of which the majority of revenue goes toward the general fund and not smoking prevention and cessation programs. Research has found e-cigarettes and other vaping products to be up to 95 percent less harmful than cigarettes, and they help smokers quit using cigarettes. Improving access to these products could be a good way to reduce smoking-related diseases and deaths. Generally, regular e-cigarette use among youths is rare but heavily coincides with reduced cigarette smoking. Policies that restrict access to these products — like the ones proposed — are counterproductive and will harm public health by pushing more people, especially youths, into smoking cigarettes.