During the special session of the Maine Legislature, Rep. Joyce McCreight (D) tabled a bill entitled HP 1039 to double the excise duty on cigarettes to $ 4.00 per pack. Under Maine law, all other tobacco products would be subject to a 100 percent rate hike. This proposal has at least four main problems: improper revenue allocation, risk of increased smuggling, regression and harm reduction violation.
The impetus for the increase is a desire to limit tobacco use and increase funding for the Maine Department of Health and the Maine Center for Disease Control and Prevention. The bill provides for $ 17 million for these agencies. Given the purpose of excise duty to cover the societal costs associated with tobacco consumption, this breakdown is reasonable. However, an increase in the rate is in no way necessary to meet these funding objectives. According to the U.S. Census, Maine raised $ 143 million in excise taxes on tobacco in 2020, and doubling tax rates would result in revenue well above $ 17 million.
The bill says that all proceeds from tobacco sales will be used for these tobacco control funds. However, it also stipulates that the U.S. Centers for Disease Control and Prevention (CDC) funding recommendations for government tobacco control programs will be lower, and the numbers will prevail. The CDC currently recommends spending 12 percent of tax revenue on tobacco control, and 12 percent of $ 143 million is around $ 17 million. Any additional income beyond the $ 17 million would likely go to the general fund.
If Maine estimates the societal cost, termed negative externalities, to be around $ 17 million above current allocations, there is no reason to double excise tax rates. The current levy is already well above this figure. Doubling tax rates is more like arbitrary taxation designed to bolster general fund collections, and excise taxes are poor means of stable income because of their narrow design.
Redistributing existing funds would be a much better strategy, as doubling interest rates carries the risk of unintended consequences. The Mackinac Center, which publishes an annual analysis of cigarette smuggling, estimates that a 100 percent increase in Maine cigarette taxes would more than triple the inbound smuggling rate (from 8 percent in 2018 to 25 percent).
In addition to the risk of smuggling, excise duties have tended to decline, some more than others. Tobacco is particularly regressive because, in contrast to regular consumption, consumption usually increases with falling income. This leads to higher consumption among young people, low wage earners, racial and ethnic minorities, and those without a university education. In Maine, college graduates are eight times less likely to smoke than non-college residents. In other words, the brunt of this tax hike would fall on those who can least afford it.
Aside from the risk associated with the increase in cigarette taxes, the bill also doubles the taxation on vape products. Today these products are taxed at the wholesale level at 43 percent of value, and that rate would increase to 86 percent. The tax rate on vapor products is supposed to be the same as the tax rate on cigarettes, but taxing vapor products at the same rate as cigarettes is against the principle of harm reduction. Cigarettes and vapor products are economical substitutes and – even if vapor products are unhealthy in their right – represent an attractive alternative to flammable cigarettes.
Vapor products can deliver nicotine, the addictive component of cigarettes, without burning and inhaling the tar, which is part of smoking cigarettes. While more research is needed into the potential harm reduction properties of steam products, there is currently consensus that steam products are less harmful than traditional flammable tobacco products. Public Health England, an agency of the UK Ministry of Health, concludes that vapor products are 95 percent less harmful than cigarettes.
Tax policy should encourage switching to limit damage and limit smoking – not the other way around. If Maine excise taxes are to account for negative externalities, steam taxes should be lower when compared to combustible products. While the increases are proportional, this calculation would set a very high rate for vaping products and maintain a ratio that would not encourage people to switch to less harmful products. In addition, the income from cigarette taxes should be used to offset the costs associated with consumption, as it is not advisable to increase the Fund’s general income by increasing the narrow and regressive taxes.
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