The progressive case for increasing the cigarette tax

“Cigarettes” by Travis Wise is licensed under CC BY 2.0

Out of all the revenue options that Oklahoma has to fix a deep budget hole, the one getting the most attention from legislative leaders is increasing the cigarette tax. Last year’s attempt to increase the cigarette tax received a majority of votes in the House, but it fell short of the three-fourths supermajority required by State Question 640 for any tax increase, with Democrats making up the biggest block of no votes.

The Republican leadership is trying again this year for a $1.50 per package increase in the cigarette tax with HB 1841, but to get it done they will need some votes from House Democrats. The biggest objection from Democrats is that a cigarette tax increase is regressive — taxing a larger share of income from the poorest Oklahomans — and would result in a troubling tax shift after recent income tax and gross production tax cuts that predominately benefited wealthy individuals and large corporations.

It’s fair for House Democrats to use their leverage on this vote to get GOP support for more progressive reforms such as strengthening working family tax credits. However, we shouldn’t get carried away with arguments that imply a higher cigarette tax would be nothing but a burden on low-income families. Increasing the cigarette tax could be a net benefit to low- and moderate-income Oklahomans for two big reasons.

#1 – Higher cigarette taxes would reduce smoking most among low-income Oklahomans

It’s undeniable that for those who continue to smoke at the same levels, a cigarette tax increase would take the biggest bite out of the incomes of poor Oklahomans. It’s no small impact. One study in New York State found that smokers earning less than $30,000 a year spent spent 25 percent of their income on cigarettes. Smoking rates are also higher among low-income individuals. The Centers for Disease Control (CDC) estimates that 26.1 percent of adults below the poverty level smoke, compared to just 13.9 percent of adults at or above the poverty level.

However, CDC research and other studies have found that lower-income, minority, and younger populations are the most likely to quit or cut back on smoking when the price of cigarettes goes up. The tax on cigarettes may be regressive, but the health benefits gained by those who quit smoking are highly progressive. An examination of the impact of a 2009 federal tobacco tax increase found that poor people paid about 12 percent of the new tax but received 46 percent of the health benefits from smoking cessation.

#2 – Revenues from the cigarette tax are essential to securing the health care safety net

HB 1841 would dedicate the new revenues from a cigarette tax increase to various health care funds, with the bulk going to important health services for low-income Oklahomans. The bill sends 45 percent of the revenue to the Health Care Authority to bolster Oklahoma’s Medicaid program (Soonercare); 28 percent would go to the Department of Mental Health and Substance Abuse Services to help with our state’s well-documented underfunding of mental health care for poor Oklahomans; 13.5 percent would go to the Department of Human Services, which operates numerous important programs for poor seniors, kids, and Oklahomans with disabilities.

Altogether that’s 86.5 percent of the revenues from this tax going to agencies that specifically focus on the most important needs of low-income individuals and families. The remaining 13.5 percent would go to the University Hospitals Authority, the Oklahoma State University Medical Authority, and the state Health Department, which provide health care and public health services to the benefit of all Oklahomans, including low-income families. Years of funding cuts have already jeopardized basic access to care for hundreds of thousands of Oklahomans, so the need for any revenues that could undo these cuts is immediate and urgent.

The bottom line

The regressivity or progressivity of any tax proposal is an important element to consider, but it’s not the only important consideration. Considering the dire need for revenues to fix Oklahoma’s budget mess and the proven health benefits of taxes that discourage smoking, a cost-benefit analysis of HB 1841 shows low- and moderate-income families coming out ahead. Lawmakers who care about a more progressive tax system should keep up the pressure and work to build public support — and we’ll continue to push for more progressive revenue options, too. But in the meantime, we shouldn’t let concerns about who pays outweigh the chance to improve health and save lives.

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Gene Perry worked for OK Policy from 2011 to 2019. He is a native Oklahoman and a citizen of the Cherokee Nation. He graduated from the University of Oklahoma with a B.A. in history and an M.A. in journalism.

One thought on “The progressive case for increasing the cigarette tax

  1. Having been around people struggling with substance abuse and recovery, I’ve noticed that a significant number of people in recovery are smokers. It seems to me that an unintended consequence of a cigarette tax would be to further penalize people working hard to overcome substance abuse. I do find curious that a percentage of the funds raised would go to mental health and substance abuse programs – perhaps much likes ubsidizing incarceration on fines and fees.

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