If you have a news tip send us an email at: tips@oregoncapitalinsider.com


How much will that vape cost you? Maybe a lot more, health agency says

State budget proposal calls for millions in new 'sin taxes' on e-cigaretes and alcohol to fund treatment

PAMPLIN MEDIA GROUP FILE PHOTO - A cloud of smoke from a vape pen could turn into tax dollars for the state if the Oregon Health Authority gets the legislative OK for new 'sin taxes.' The state does not tax vape pens or e-cigarettes, but that could change.SALEM — State health officials say they want a substantial tax to drive down smoking and binge drinking.

About 20 percent of Oregonians smoke, exceeding the national average and increasing their risk for strokes, lung cancer and heart disease. It's the state's highest cause of preventable death.

And in a state renowned for hoppy IPAs and fruit-forward pinot noirs, alcohol-related deaths have climbed about 38 percent since 2001, according to the Oregon Health Authority.

Nearly 2,000 people died from alcohol overuse in the state in 2016, making it Oregon's third most common cause of preventable death. State officials think they can use tax policy to improve public health and reduce health care costs. "The purpose of this was to use this as a lever to cut down consumption," said Pat Allen, Oregon Health Authority director.

PMG/EO MEDIA/SRBut the success of such policies, or "sin taxes," may depend on whether price increases are significant enough to deter consumers, and whether smokers or drinkers can find products elsewhere at lower prices.

Nationally, alcohol taxes haven't increased much since the 1990s, which makes it more challenging to understand drinkers' sensitivity to price increases, said Benjamin Hansen, a professor of economics at the University of Oregon.

The efficacy of tobacco taxes may also be changing with the growing popularity of largely untaxed alternatives like e-cigarettes and vape pens, which typically have less nicotine and are marketed as less harmful. Those products aren't taxed in Oregon, according to the Public Health Law Center, but the Health Authority is proposing to tax them.

Hansen said policymakers should also consider whether tobacco consumers could get a similar product more cheaply on the black market, online or in another state.

A successful "sin tax" doesn't work as a long-term strategy for the state budget.

"The better these taxes are for health, the worse they are for revenue," Hansen said.

The Health Authority wants to increase taxes on beer, wine and cider by 10 percent, which officials estimate could raise $491 million over two years.

The agency also wants to raise $293 million through a $2 per pack tax on cigarettes, a tax on "inhalant delivery systems" like e-cigarettes, and removing the 50-cent limit on taxes per cigar.

Keeping up with inflation

Oregon's cigarette taxes rank about 30th among states, according to the Tax Foundation, a Washington, D.C., think tank. Idaho is the only neighboring state with lower cigarette taxes.

Advocates maintain tax increases dissuade people from smoking. "A substantial body of research, which has accumulated over many decades and from many countries, shows that significantly increasing the excise tax and price of tobacco products is the single most consistently effective tool for reducing tobacco use," according to a 2017 study by the World Health Organization and the National Cancer Institute. "Significant increases in tobacco taxes and prices reduce tobacco use by leading some current users to quit, preventing potential users from initiating use, and reducing consumption among current users."

The Health Authority's proposal would tax vape pens and e-cigarettes that are seen as a lower-nicotine alternative to cigarettes or cigars. The Health Authority is budgeting about $29 million of the taxes for tobacco and chronic disease prevention. The Legislature would decide how to distribute the rest.

The state also has some of the lowest alcohol taxes in the country, according to the Health Authority. Beer taxes remain at the same level they were in 1977 and the rate for wines was last changed in in 1983.

"In real terms, beer and wine taxes fall every year because they do not keep up with inflation," according to the Health Authority's budget proposal. The proposal includes automatic tax increases to account for inflation.

The agency said a 10 percent increase in the price of alcohol would reduce excessive drinking by 5 percent. They said such alcohol abuse costs the state's economy about $3.5 billion every year.

The agency said the tax increase would reduce by $287 million a year costs "related to lost productivity and absenteeism, premature death, health care, crime, motor vehicle crashes and fetal alcohol syndrome."

The agency proposes spending $49 million more on alcohol and drug treatment.

The rest would be distributed under an existing formula to the state general fund, which pays for general state operations, and cities and counties.

Wide list of options

As proposed, the tax increases on alcohol and tobacco would be one of the largest state tax hikes in recent times. Some prior tax bills have been comparable in scale.

In 2009, lawmakers raised income taxes by about $801 million for the biennium.

And last year's transportation package, which included several tax increases, was designed to raise more than $5 billion over 10 years. In the next two-year budget, it's expected to raise $910 million.

It's not easy to raise taxes in Oregon, because those measures require approval from 60 percent of the lawmakers in the House and Senate. Taxes on tobacco and alcohol are an especially big lift.

In 2016, Gov. Kate Brown proposed raising cigarette taxes by 85 cents per pack, but that did not come to fruition, and taxes remain at $1.33 per pack. Brown's office didn't respond to written questions about whether the governor supported the proposed tax increases on alcohol and tobacco.

"Agencies drive the content of their proposals, and our office is not in the habit of striking ideas down or escalating them until the appropriate point, which takes place when the governor finalizes her budget from a wide list of options that agencies bring to the table," spokeswoman Kate Kondayen wrote in an email.

Allen said he and his staff have discussed the proposal with her staff but got no direction on it from the governor or her office.

Reporter Claire Withycombe: cwithycombe@eomediagroup.com or 503-385-4903. Withycombe is a reporter for the East Oregonian working for the Oregon Capital Bureau, a collaboration of EO Media Group, Pamplin Media Group, and Salem Reporter.