For the first time in decades, Congress recently delivered significant tax relief for families, small businesses and job creators. Utility bills are falling, take-home pay is up, unemployment is down, millions are receiving bonuses, and the economy is doing well. But special spending interests are now pushing for regressive tax hikes in Kentucky, an effort that should be squashed.
Two major tax increases are being considered in Frankfort. The first is a 25 cents per milligram tax on legal prescription opioids, which recently passed the House. No other state in the nation has imposed such a tax, including California or New York. Taxing opioids is not an addiction mitigation strategy. It is a shameless cash grab that seeks to exploit tragedy for government gain.
This $70 million per year tax wouldn’t even be spent on drug treatment programs; it would be used to compensate for the state’s failure to address rising pension costs and for higher education spending. Not a single addict or struggling Kentuckian would be helped with this tax on people who are most in need of prescribed medicines.
Another reason the proposed opioid tax is a foolish idea is that by imposing such a tax, the government would essentially be taxing itself. That’s because a third of the cost of Kentucky’s Medicaid program is covered by the state. Since the state Medicaid program purchases a large quantity of prescription drugs, a portion of an opioid tax hike’s price tag would be borne by all Kentucky taxpayers in the form of higher Medicaid costs.
The second misguided tax hike under consideration is an 83 percent increase in the state cigarette tax. Cigarette tax hikes are often sold as a way to raise significant tax revenue from disfavored people — smokers. Like a tax on prescription medicines, however, these taxes are regressive and fall disproportionately on the backs of low-income consumers.
Proponents argue that this money could go toward education spending. Making education funding more reliant on people smoking, however, is reckless because a tax hike on cigarettes won’t necessarily lead to more revenue in the long run. Cigarettes sales in Kentucky are already a declining source of revenue. In fact, while revenues initially jumped after the last cigarette tax hike in 2009, they have significantly decreased since 2011.
Tax hikes exacerbate the decline in tax collections long term because they cause cigarette smuggling and cross-border sales into Virginia, where the rate is only 30 cents per pack, or Tennessee, Indiana, and Missouri, all of which have lower taxes than the proposed $1.10 per pack rate for Kentucky.
Passage of a cigarette tax hike has been a top priority for organizations like the Foundation for a Healthy Kentucky, which has spent $100,000 this year pushing for a tax hike on cigarettes — more money on lobbying than any other organization in the state. The organization’s leader, former Congressman Ben Chandler has an interesting history on tobacco. He received at least $20,000 from Big Tobacco companies during his last two terms in Congress, according to Open Secrets. He has a record of flip-flopping, having signed and then violated the Taxpayer Protection Pledge to Kentucky voters to oppose tax hikes while in office.
Where the Foundation would better focus its public health efforts would be in supporting smoking cessation products that stand to save more lives than tax hikes ever could. Unfortunately, Chandler has attacked electronic cigarettes, which are tobacco-free and significantly less harmful than cigarettes according to the current commissioner of the Food and Drug Administration and countless other international health groups.
Imposing the first in the nation tax on legal prescription opioids and a significant increase in the state cigarette tax are two regressive tax hikes that add up to more than $250 million in higher costs on Kentucky consumers per year. The Senate and Gov. Matt Bevin should reject this approach to balancing the budget and focus on structural budget and genuine tax reforms instead.
Paul Blair is the Strategic Initiatives Director at Americans for Tax Reform, the organization founded by Grover Norquist. He can be reached by email at email@example.com or on Twitter @gopaulblair.