Tax will run up the cost of vaping, smoking and drinking
SALEM — State health officials say they want a substantial tax to drive down the numbers of people smoking and binge drinking.
About 20 percent of Oregonians smoke, exceeding the national average and increasing their risk for strokes, lung cancer and heart disease. It's the state's highest cause of preventable death, health officials say.
And in a state renowned for hoppy IPAs and fruit-forward pinot noirs, alcohol-related deaths have climbed about 38 percent since 2001, according to the Oregon Health Authority.
Nearly 2,000 people died from alcohol overuse in the state in 2016, making it Oregon's third most common cause of preventable death. State officials hope to use tax policy to improve public health and reduce health care costs.
"The purpose of this was to use this as a lever to cut down consumption," Oregon Health Authority Director Pat Allen said.
But the success of such policies, or "sin taxes," may depend on whether price increases are significant enough to deter consumers, and whether smokers or drinkers can find products elsewhere at lower prices.
Nationally, alcohol taxes haven't increased much since the 1990s, which makes it more challenging to understand drinkers' sensitivity to price increases, said Benjamin Hansen, a professor of economics at the University of Oregon.
The efficacy of tobacco taxes may also be changing with the growing popularity of largely untaxed alternatives like e-cigarettes and vape pens, which typically have less nicotine and are marketed as less harmful. Those products aren't taxed in Oregon, but the OHS is proposing to tax them.
Hansen said policymakers should also consider whether tobacco consumers could get a similar product more cheaply on the black market, online or in another state.
He added that a successful sin tax doesn't work as a long-term strategy for the state budget.
"The better these taxes are for health, the worse they are for revenue," Hansen said.
The OHA wants to increase taxes on beer, wine and cider by 10 percent, which officials estimate could raise $491 million over two years.
The agency also wants to raise $293 million through a $2 per pack tax on cigarettes, a tax on "inhalant delivery systems" like e-cigarettes, and removing the 50-cent limit on taxes per cigar.
Keeping up with inflation
Oregon's cigarette taxes rank about 30th among states, according to the Tax Foundation, a Washington, D.C., think tank. Idaho is the only neighboring state with lower cigarette taxes.
Advocates maintain tax increases dissuade people from smoking.
"A substantial body of research, which has accumulated over many decades and from many countries, shows that significantly increasing the excise tax and price of tobacco products is the single most consistently effective tool for reducing tobacco use," according to a 2017 study by the World Health Organization and the National Cancer Institute. "Significant increases in tobacco taxes and prices reduce tobacco use by leading some current users to quit, preventing potential users from initiating use, and reducing consumption among current users."
The OHA's proposal would tax vape pens and e-cigarettes that are seen as a lower-nicotine alternative to cigarettes or cigars. The OHA is budgeting about $29 million of the taxes for tobacco and chronic disease prevention. The Legislature would decide how to distribute the rest.
The state also has some of the lowest alcohol taxes in the country, according to the OHA. Beer taxes remain at the same level they were in 1977 and the rate for wines was last changed in 1983.
"In real terms, beer and wine taxes fall every year because they do not keep up with inflation," according to the OHA's budget proposal, which includes automatic tax increases to account for inflation.
The agency said a 10 percent increase in the price of alcohol would reduce excessive drinking by 5 percent. They said such alcohol abuse costs the state's economy about $3.5 billion every year.
The agency added that the tax increase would reduce by $287 million a year costs "related to lost productivity and absenteeism, premature death, health care, crime, motor vehicle crashes and fetal alcohol syndrome."
The agency proposes spending $49 million more on alcohol and drug treatment.
The rest would be distributed under an existing formula to the state general fund, which pays for general state operations, and cities and counties.