The Republican-controlled Indiana House has approved a two-year state budget proposal that, among other provisions, increases the state's cigarette tax by 50 cents per pack, and imposes a new 10% sales tax surcharge on vaping products.
Under House Bill 1001, the tax hikes on smoking and vaping would take effect July 1, if they are not removed by the Republican-controlled Senate and are signed into law by Republican Gov. Eric Holcomb.
Cigarettes sold in Indiana still would be a comparative bargain even after adding 50 cents to the state's current $1 per pack cigarette tax.
Indiana's proposed new cigarette tax rate of $1.50 per pack is lower than Illinois' $2.98 per pack cigarette tax, and cigarettes sold in Cook County ($3) and Chicago ($1.18) are subject to additional local taxes on every pack sold in those jurisdictions.
State Rep. Tim Brown, R-Crawfordsville, chairman of the budget-writing House Ways and Means Committee, said increasing the cigarette tax — an idea originally championed by state Rep. Julie Olthoff, R-Crown Point — will help shrink Indiana’s nearly highest in the nation smoking rate and generate additional revenue for Medicaid health care costs.
“This is the number one thing to reduce new smokers and women who are pregnant from smoking,” Brown said.
Nick Torres, advocacy director for the American Lung Association in Indiana, disagreed. He said a 50-cent per pack increase will not boost the smoking cessation rate or deter kids from taking up the habit.
"We are calling on the Indiana Senate to include a cigarette tax increase of $2 per pack," Torres said.
Approximately 50% of state spending in the House-approved budget is dedicated to elementary and high school education.
The school funding formula would grow by $93.9 million for the 2021-22 school year and $284.1 million in 2022-23 — a total of $378 million, or 3.8%, for the biennium. Holcomb recommended a $375 million increase.
Democrats note much of that increase will be gobbled up by the expanded access to private school vouchers and new education savings accounts for eligible students in House Bill 1005, leaving Indiana public schools — which educate 90% of Hoosier children — with funding increases that are less than the rate of inflation.
There also is no specific funding for teacher pay raises in the House budget. Though it does include $37.5 million each year for Teacher Appreciation Grants.
Brown noted teacher pay is set by local school corporations. He said they should consider using the increased funding from the state, along with the $800 million in COVID-19 relief Indiana schools are due to receive from the federal government, to find ways of boosting teacher pay if that is a local priority.
Overall, the House budget is balanced. It spends $130 million less than the state’s anticipated revenue in 2022, and has a $227 million surplus in 2023.
The state’s budget reserve accounts also will remain over $2 billion in each year of the budget, Brown said.