Tobacco Harm Reduction as the Basis for Tax Policy in Indiana & Kentucky

On April 29, 2011, Indiana became the second state in the U.S. to officially recognize tobacco harm reduction. Governor Mitch Daniels signed into law HB 1004 (available here), which states: “The Indiana general assembly finds that the tax rate on smokeless tobacco should reflect the relative risk between such products and cigarettes.”

This is a landmark event. It sets the stage for the state to develop a rational excise tax policy for tobacco products -- something I have advocated since 2003. That year, I proposed that smokeless tobacco products and cigarettes should be taxed according to risk, in order to provide an economic incentive for smokers to transition from high risk/high tax cigarettes to very low risk/low tax smokeless products. My commentary was published by newspapers in Tallahassee and Tampa, Florida (here and here and St. Louis (here).

On March 23 of this year, I provided expert testimony at a hearing of the Indiana Senate Committee on Public Policy, which was considering HB 1405, a bill to appropriately classify dissolvable tobacco products. That legislation (here) was also passed by the legislature and signed by the governor. My prepared testimony is available here.

Indiana is the second state to recognize the roles that tobacco harm reduction and tobacco excise tax policy can play in promoting public health. In 2005, the Kentucky General Assembly passed and Governor Ernie Fletcher signed into law a bill recognizing that:

“increasing taxes on tobacco products should reduce consumption, and therefore result in healthier lifestyles for Kentuckians. The relative taxes on tobacco products proposed in this section reflect the growing data from scientific studies suggesting that although smokeless tobacco poses some risks, those health risks are significantly less than the risks posed by other forms of tobacco products. Moreover, the General Assembly acknowledges that some in the public health community recognize that tobacco harm reduction should be a complementary public health strategy regarding tobacco products. Taxing tobacco products according to relative risk is a rational tax policy and may well serve the public health goal of reducing smoking-related mortality and morbidity and lowering health care costs associated with tobacco-related disease.”

The idea of a rational risk-based tobacco tax is clearly gaining momentum in policy circles. Earlier this year, the National Center for Policy Analysis, a nonprofit, nonpartisan public policy research organization, issued a report titled “Taxing Tobacco By Risk.” That document, available on the NCPA website (here), discusses tobacco harm reduction as a basis for tax policy and concludes: “States that wish to pursue a consistent and science-based tobacco harm reduction strategy should examine the way in which they tax tobacco products and the amount of tax levied on these products.”

In 2003, I wrote: “When it comes to taxes there are no easy answers. But a rational tobacco tax strategy based on risk is as compelling as it is innovative, because it allows lawmakers to meet their fiscal responsibility while fulfilling their moral obligation to help smokers who are desperate to quit.”

Indiana and Kentucky have admirably adopted this compelling and innovative strategy; other states will be wise to follow.