Indiana's Cigarette Tax
Indiana's Cigarette Tax

The pure facts and figures

Brought to you by the Indiana Smoker's Coalition

Some of us are painfully aware that the Legislature of the State of Indiana passed House Bill 1678 to increase the Excise, or 'Sin', Tax on cigarettes from $0.555 to $0.995 per pack on April 29th, 2007. The much touted purpose of this tax increase was to pay for insurance for nearly 132,000 uninsured Hoosiers. However, as with most political agendas, this was a smoke and mirror game to makre our elected officials look good while adding to the State's coffers. At least, I hope it was the usual smoke and mirrors. Otherwise, our elected officials cannot do simple math or are completely out of touch with the reality of healthcare. Below are a few tables to show the numbers that they have to work with. The first one here shows the change in the excise tax on cigarettes.

$0.555/pack$0.995/pack
Cigarette Tax Fund6.60%4.22%
Mental Health Centers Fund0.94%0.60%
State General Fund83.97%53.68%
Pension Relief Fund8.49%5.43%
Indiana Check-Up Plan0%27.05%
Medicaid Current Obligations0%2.46%
Health Initiatives0%4.10%
Tax Credit for Businesses0%2.46%
Indiana House Bill 1678
http://www.in.gov/legislative/bills/2007/HCCP/CC167802.001.html

At first glance it looks like the State took a hit to it's revenue for the first four funds, which were in the old Indiana Code for the distrubution of the Cigarette Excise Tax. However, the next table shows quite the opposite. The State General Fund will receive nearly $41 million extra per year with this tax increase. And for those wishing to know how I came up with the projected figures, it was simple. The Dept. of Revenue publicizes all it's data on collected taxes. So, knowing how much they colleted and what the tax was, I figured out how many packs of cigarettes were sold and then did the math with the new tax rate (2006 tax / .555 * .995 = projection). Now, this is not 100% accurate, merely a projection. The politicians and anti-smoking groups hope this will cause people to quit, or not start, smoking. They had better hope that they are wrong. Remember the plan to cover 132,000 uninsured Hoosiers? Well, with the revenue going to the Indiana Check-Up Fund (the new healthcare plan) it would give them roughly $1,200 per Hoosier, per year if they cover all 132,000. Oh, did I mention that the law will allow an insurance company that contracts with the State to keep up to 15% of the money for profit, meaning less money to cover the people and leaving just over $1,000 for each person. Here is the reality check, in 2006 the average cost of health insurance in the nation was $4,024 for an individual. Which means that if this works like what most people's insurance does, the state can only fund the program for 33,000 of the 132,000 hoosiers that it is supposed to cover. If, on the otherhand, it works more like a health savings account then they will be able to fund the 132,000 up to about $1,000 per person a year. Keep in mind that a Emergency Room visit or a night in the hospital can run nearly $500. A person could easily deplete this money in a few days, not to mention doctor appointments, medications, etc. However, the law stipulates an annual individual maximum coverage limitation of three hundred thousand dollars ($300,000), or a lifetime individual maximum coverage limitation of one million dollars ($1,000,000), which makes it sound more like a traditional insurace plan. Either way, the program is grossly underfunded. I can't believe the state will be able to get traditional insurance for a fourth of the national average, and it cannot afford to run as a health savings account. That is why they had better hope that people do not buy less cigarettes, it will decrease the money to an already underfunded program.

$0.555/pack$0.995/pack
Cigarette Tax Fund$22,144,650.00$25,384,431.04
Mental Health Centers Fund$3,153,935.00$3,609,160.81
State General Fund$281,740,342.50$322,899,587.21
Pension Relief Fund$28,486,072.50$32,662,905.34
Indiana Check-Up Plan$0.00$162,712,999.89
Medicaid Current Obligations$0.00$14,797,559.32
Health Initiatives$0.00$24,662,598.87
Tax Credit for Businesses$0.00$14,797,559.32
Total Taxes Collected$335,525,000.00$601,526,801.80
Calculated on 2006 sales of cigarettes based on Indiana Dept. of Revenue data

There are some other issues with the plan that the people of Indiana need to know. One of the is the requirement that anyone wishing to participate must contribute 2% to 5% (based on their income level) of their annual income, up to $1,100 per person covered, to a healthcare savings account. The plan only is available to those between the ages of 18 and 65 who are not eligible for other government funded healthcare (i.e. Medicaid or Medicare) and whose employer does not offer health insurance. A person must be a U.S. Citizen and an Indiana resident for at least 12 months to be eligible. And their household income must be below 200% of the Federal Poverty Guidelines. So, for a family of 4 the maximum you can make is $51,300 per year. And note that even though you might be a family of 4, children under 18 do not qualify for this plan. One more note in the law, they do not guarantee coverage for the 132,000 people they calim this will help. The law says that 'The plan is not an entitlement program. The maximum enrollment of individuals who may participate in the plan is dependent on funding appropriated for the plan.'

2007 Federal Poverty Guidelines
Family SizeAnnual GrossMonthly GrossHourly
1$10,210$851$4.91
2$13,690$1,141$6.58
3$17,170$1,431$8.25
4$20,650$1,721$9.93
5$24,130$2,011$11.60
6$27,610$2,301$13.27
7$31,090$2,591$14.95
8$34,570$2,881$16.62
Each additional child+$3,480+$290+$1.67
U.S. Dept. of Health & Human Services http://aspe.hhs.gov/poverty/07poverty.shtml

One of the biggest jokes in this law is the Tax Credit for Businesses. This is the money set aside to give employers who offer insurance to it's employees a break on their taxes. This is only available to employers who did not already offer insurance, so it is designed to give them an incentive to do so. It sounds like a good idea, right? Well, this is just a 'feel good' plan for our legislature. The law allows a $50 tax credit per employee (up to $2500) that enrolls in the company's insurance plan per year for two years. Now, most companies that do not offer insurance are small and cannot afford the cost of the premiums. And I highly doubt that $50 is going to be enough to make it affordable to them.

2006 Taxes
Controlled Substance Excise Tax$352,600
Alcoholic Beverage Tax$40,529,600
Food and Beverage Tax$54,266,200
Cigarette/Other Tobacco Tax$355,525,000
Gasoline Tax$570,490,200
Indiana Dept. of Revenue http://www.in.gov/dor/reference/report/06pdf/description.pdf

Ditch Mitch in '08