Indiana Senate ditches cigarette tax hike, proposes tax on vaping

Indiana Senate Republicans have ditched a proposed increase in the state cigarette tax as part of their two-year $35.8 billion state budget plan.

The House version of the budget, which passed in late February, included a cigarette tax increase of 50 cents per pack—and even that wasn’t nearly as much as tax advocates had hoped for.  Instead, the Senate is opting for a tax on vaping.

In presenting their overall budget proposal, Senate Republicans stressed it provides $875 million more for K-12 education, cuts half a billion dollars in debt, increases funding for mental health, special education and law enforcement, and makes one-term investments to produce long-term financial benefits for the state.

“We end up with more than $2 billion in reserves,” said Sen. Ryan Mishler, R-Bremen, chairman of the Senate Committee on Appropriations. “That’s a pretty good place to be after what we’ve been through…That’s kind of been the major number for me. Our goal is to always try to have education as half of our budget, and education is 50 percent.”

Senate Republicans, he said, wanted to build the reserves back up, after dipping into them during the pandemic. “We could always spend more money, but that would not be good for the state of Indiana.”

But Rep. Gregory Porter, D-Indianapolis, ranking member of the House Ways and Means Committee, criticized the proposal for not restoring enough money for programs for Hoosiers, including small business owners, not giving teachers higher raises, and not investing adequately in addressing minority health disparities.

“It’s still not a good budget,” he said. “They put a little sweetener in there for some programs. But I think the budget has a long way to go.”

The new budget proposal cleared the Senate Committee on Appropriations today on an 11-2 vote. Sens. Fady Qaddoura, D-Indianapolis, and Karen Tallian, D-Portage, voted against it. All amendments recommended by Democrats, including a cigarette tax hike, were defeated.

While the cigarette tax hike was removed, the Senate GOP plan did call for taxes on vaping e-liquids. The taxes would amount to 10 cents per milliliter for closed vaping systems at wholesale and a 10% charge for open systems and devices at retail. There aren’t any taxes on vaping products now.

Mishler explained in a press briefing the tax revenue on vaping products isn’t expected to be significant. But he said it is important to put taxes on vaping on par with cigarette taxes to send a message to young people that vaping carries health risks.

“I’d be shocked if it (revenue) was more than $5 million a year,” he estimated.

Mishler said Senate Republicans did not want to raise cigarette taxes now, in case that step is needed to bring in more revenue in the future to cover increased Medicaid costs not covered by the federal government.

“We would raise it for Medicaid,” he added. “We feel that someday we are going to need to do a significant increase to pay for our health care costs.”

During the budget debate in committee, Sen. Eddie Melton, D-Gary, offered a Democratic caucus-supported amendment to increase the tax by $1 per pack. He said the hike would bring in $266 million in revenue per year and would be directed toward Medicaid expenses and tobacco cessation programs.

He stressed that tobacco use remains the number one preventable cause of death that leads to many millions of dollars in Medicaid expenses. But the amendment failed 4-9 as did the Democrats’ other amendments.

The Senate GOP plan also includes a smaller expansion of the state school voucher plan and more spending on special education than the House-approved budget. With the Senate plan, the entire school funding appropriation totals $15.4 billion over the biennium, with K-12 tuition support hikes of 1.2% in fiscal 2022 and 4.2% in fiscal 2023.

The Senate budget is expected to create a surplus of $2.2 billion in 2022 and $2.1 billion in 2023. Reserves would be 12.4% of spending for fiscal 2022 and 11.1% percent for fiscal 2023.

But Rep. Greg Porter, D-Indianapolis, said those estimates of reserves are less than the actual figures would be because the Senate GOP isn’t planning on spending all of the additional $3 billion in American Rescue Plan federal stimulus funds that state is expected to receive. Taking that into consideration, he estimated the surplus would be about 20% of the budget.

“It’s absolutely unnecessary to have that much,” Porter added. Federal funds could be used for one-time expenses for broadband access and water projects, for example, to free up dollars in the budget for essential services, he said.

Yet Mishler said he doesn’t think it’s wise to spend all of the $3 billion now. “We may have some issues we don’t even know about now in the future.”

The proposed Senate GOP budget also:

• Creates the Regional Economic Acceleration and Development Initiative (READI);
• Provide Small Business Restart Grants for businesses affected by the pandemic;
• Provides $150 million to address student learning loss due to the pandemic;
• Expands broadband access with $250 million in federal funds;
• Funds higher education with $4.2 billion over the biennium, restoring full funding to fiscal 2021 in 2022 and giving a 2% increase in fiscal 2023;
• Invests in mental health support and grants to improve Hoosiers’ health;
• Provides $5 million in fiscal 2023 for pay raises for the Indiana State Police, state conservation and excise officers;
• Maintains Teacher Appreciation Grant funding at $37.5 million;
• Establishes the High Tech Crimes Unit and provide funding for ISP to fight internet crimes against children; and
• Provided body cameras for state police and local law enforcement agencies.

Next, the Senate GOP plan will go to the Senate floor, where it can be amended. Differences between the Senate and House plan will then need to be settled before both chambers can approve the final version by the end of the session later this month. The budget would take effect in July.

XXXXXXXX

Indiana Senate Republicans have ditched a proposed increase in the state cigarette tax as part of their two-year $35.8 billion state budget plan.

The House version of the budget, which passed in late February, included a cigarette tax increase of 50 cents per pack—and even that wasn’t nearly as much as tax advocates had hoped for.

The state’s cigarette tax now stands at $1 a pack and hasn’t been increased in 14 years.

The new budget proposal cleared the Senate Committee on Appropriations today on an 11-2 vote. Sens. Fady Qaddoura, D-Indianapolis, and Karen Tallian, D-Portage, voted against it. All amendments recommended by Democrats, including a cigarette tax hike, were defeated.

While the cigarette tax hike was removed, the Senate GOP plan did call for taxes on vaping e-liquids. The taxes would amount to 10 cents per milliliter for closed vaping systems at wholesale and 10 percent charge for open systems and devices at retail. There aren’t any taxes on vaping products now.

Sen. Ryan Mishler, R- Bremen, committee chairman, explained in a press briefing today  that the tax revenue on vaping products isn’t expected to be significant. But he said it is important to put taxes on vaping on par with cigarette taxes to send a message to young people that vaping carries health risks.

“I’d be shocked if it (revenue) was more than $5 million a year,” he estimated.

Mishler explained that Senate Republicans did not want to raise cigarette taxes now, in case that step is needed to bring in more revenue in the future to cover increased Medicaid costs not covered by the federal government.

“We would raise it for Medicaid,” he added. “We feel that someday we are going to need to do a significant increase to pay for our health care costs.”

During the budget debate in committee, Sen. Eddie Melton, D-Gary, offered a Democratic caucus-supported amendment to increase the tax by $1 per pack. He said the hike would bring in $266 million in revenue per year and would be directed toward Medicaid expenses and tobacco cessation programs.

He stressed that tobacco use remains the number one preventable cause of death that leads to many millions of dollars in Medicaid expenses. But the amendment failed 4-9 as did the Democrats’ other amendments.

The Senate GOP plan, which also includes a smaller expansion of the state school voucher plan and more spending on special education than the House-approved budget, is expected to create a surplus of about $2 billion. Reserves would be 12.4% of spending for fiscal 2022 and 11.1% percent for fiscal 2023.

The House’s $36.3 billion two-year budget plan was projected to leave the state with a surplus of $130 million in fiscal 2022 and $227 million in fiscal year 2023. Reserves would be at 11.9% of spending in fiscal year 2022 and 11.7% in fiscal year 2023.

Next, the Senate GOP plan will go to the Senate floor, where it can be amended. Differences between the Senate and House plan will then need to be settled before both chambers can approve the final version by the end of the session later this month. The budget would take effect in July.