Tobacco tax discourages smoking, also provides necessary funds

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Later in the 2017 legislative session a bill came before the House Taxation Committee (to which I served on), to raise or create taxes on nicotine delivery systems, inclusive of cigarettes, chew, and vaping products. The bill was sponsored by Sen. Mary Caferro of Helena. On the morning of the hearing I suggested to Sen. Caferro, that it was unlikely the bill would pass out of the committee and I offered to amend the bill by lowering the increase on the proposed tax structure. The Senator didnít take me up on the request citing the need to maintain the increase to see a meaningful reduction in smoking. The Senator was not confident in the legislative outcome but assured me it would appear as a ballot initiative if the House tax turned it down. My Republican colleagues were having nothing to do with the bill and it is unlikely a lesser increase would have changed minds.

As predicted the tax increase did morph into a ballot initiative known as I-185. The initiative links the failed 2017 bill with the renewal of Medicaid coverage for eligible Montanaís. As you read this the federal governmentís contribution to HELP (Montana Health and Economic Livelihood Partnership Act), has decreased from 100 percent at the inception of the program two sessions back to the current level of about 94 percent. The rules of expanded Medicaid date back to Obama Care or the Affordable Care Act. The HELP act is a component of the Obama Care. Following the introductory period, and as a strategy to lower the rate of uninsured within participating states and for those states to assume some of the financial responsibility, the subsidy by the federal government would be reduced from 100 percent to 90 percent.

The tobacco tax increase and the renewal of HELP are two distinct policies that potentially could have stood alone. The Legislature will deal with the renewal regardless of the outcome of I-185. The increase tax is a very good thing. I learned in the 2017 Tax Committee hearing that the ancillary health harms caused by a package of cigarette amounts to about $19 per package. While vaping is a better alternative for those currently smoking, the rate of underage vaping (nicotine laced), is alarming. The public should be weary of subsidizing the cost of tobacco addiction through the high cost of health care, lost work time and the fallout from lower life expectancies.

Government accounting is tricky and if you are like me, a budget spread sheet can be a real Rubricís Cube. The renewal of HELP will be considered new expenses, termed as pressures by the Legislative Fiscal Division because HELP terminates without reauthorization by the legislature. LFD projects the cost of HELP at about $198 million for the 2021 biennium. The nicotine tax will subsidize that expenditure by $52 million per biennium.

The taxes, ($2 increase on a package of cigarettes and 33 percent increase based wholesale costs of other products), on nicotine delivering products will fund the following: Up to $3 million per year on smoking prevention programs, up to $2 million per year on veterans services, up to $5 million per year on home and community based Medicaid programs (people can stay at home) and up to $26 million dollars per year for HELP.

If the initiative fails and the legislature fails to renew HELP, $47 million dollars per biennium will need to be spent on those people who will be eligible to be covered under traditional Medicaid services. The rate of uninsured will rise and such costs will be at the expense of hospitals and insurance rates. There will be economic impacts if the act passes or fails. The $100 million per year at 2021 rates could be allocated for other needs or simply not spent. And those costs will likely increase as the number of eligible recipients cap at about 105,000 Montanans. Like it or not, the health care industry might be considered our new legacy industry. Renewal of HELP will likely yield long term economic gains in payroll through higher paying jobs, associated income tax collections, and will likely allow the continued services of smaller facilities in rural towns.

Lacking a single payer system, we find ourselves navigating a confusing alphabet soup of acronyms from childrenís healthcare insurance, to the VA services, Medicare, Medicaid, Obama Care subsidies, and insurance through your workplace. I-185 asks you basic questions concerning taxation, the role of state government, and the allocation of your tax dollars. The tax increase was never intended to pay the entire bill for eligible HELP recipients, but it clearly intends states to have some skin in the game. The Ballotpedia website offer a balanced and comprehensive analysis of the Montana ballot proposals for 2018. The initiative process allows direct participation by the electorate. I encourage you to study the many storylines of I-185, discuss the initiative with friends and family and vote.

Democrat Dave Fern, of Whitefish, represents House District 5 in the Montana Legislature.

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