New Indiana Law Hikes Tobacco Tax by 300 Percent: Who Will Pay?

Indiana lawmakers just passed a bill that will hike the current tax on tobacco by 300% to offset a massive budget deficit, but who's really going to be footing the bill?

Indiana Faces a Two-Billion-Dollar Budget Deficit

The State of Indiana was facing a $2 billion budget deficit. To counter the shortfall, Indiana Republicans proposed House Bill 1001, which has now passed. In part, the bill will raise the tax on cigarettes from $1 to $3 per pack - a 300% rate increase, according to Axios.

The tax increase, which will go into effect on July 1, 2025, will also increase the tax on cigars, moist snuff, and electronic cigarettes. The increases are projected to generate roughly $800 million in tax revenue over the next two years.

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What the Tobacco Tax Increase Will Cover

The additional tax revenue generated from the hike is expected to offset Medicaid costs and other health-related programs. The rate increase has been presented as a way to prevent underage smoking, drive adult smokers to quit, and save a large sum in future health care costs, according to TobaccoFreeKids.org.

How the Tobacco Tax Increase Could Impact Smokers

However, when we look at who smokes, it can make this new increase seem like a tax on the poor. The Centers for Disease Control and Prevention has some interesting sociodemographic data, in particular, on how much of the smoking population within the United States is considered to be economically disadvantaged.

• 41.1% among men with incomes below the federal poverty level
• 32.5% among women with incomes below the federal poverty level

Meanwhile, the median household income in the Hoosier State is $69,477.

The Link Between Income Level and Smoking Rates

Some older data from Ball State University, dating back to 2012, breaks down the correlation between household income and smoking in Indiana, specifically.

• 39.4% of adults with household incomes of less than $15,000
• 30.9% of adults with household incomes of $15,000‐$24,999
• 24.2% of adults with household incomes of $25,000‐$49,999
• 16.6% of adults with household incomes of $50,000‐$74,999
• 11.1% of adults with household incomes of $75,000+ report being a current smoker

READ MORE: Indiana Law - Don't Throw These Items in the Trash

Who Will Be Most Affected by Indiana's New Tobacco Tax

While the deficit in the state budget can certainly be offset by the income generated from the increased tobacco tax, it would seem that the burden of that shortfall may rest disproportionately on the shoulders of those who are financially disadvantaged in the state.