Brown floats $2 tobacco tax increase to fund Medicaid

SALEM, Ore. (AP) — Oregon Gov. Kate Brown plans to pay down the state’s Medicaid shortfall through a $2 tax increase on tobacco products, plus an additional tax on e-cigarettes and other vaping products.

The governor told the House Committee on Revenue Wednesday that the tax “will provide long-term sustainable funding,” while also encouraging people to quit smoking.

Oregon has one of the lowest cigarette taxes in the country, at $1.33 per a 20 pack of cigarettes. The proposed tax increase, which would have to approved by the Legislature, would have customers paying $3.33 in state taxes, some of the highest in the nation.

Brown said the plan will bring in $346 million every two years. She plans to earmark 10 percent of the funds for tobacco cessation programs, with the rest going to the state’s Medicaid fund.

Oregon is facing a $950 million Medicaid funding gap, in part because of a drop in federal funding. The state will pay off half its debt with a recently-approved tax on health care providers. The proposed tobacco tax will help cover some of the remaining costs.

The plan would also impose the state’s first tax on e-cigarettes, calling for a 65% tax on the wholesale price as a way to combat rising rates of vaping among teens.

Supporters say that the tax will not only bring in more money for the state, but also decrease long-term health care costs related to smoking. The Oregon Health Authority estimates tobacco use costs Oregonians $2.5 billion a year.

“Tobacco is one of the highest drivers of the health care system,” said Christopher Friend, with the American Cancer Society Cancer Action Network. “This tax would reduce the number of lives lost and save our health care system millions of dollars over time.”

Business groups slammed the idea, saying that high taxes would hurt small businesses and only push consumers to find the products online or on the black market.

“The legislature has been raising the cost the business, while now attempting to raise the cost of products,” said Emily Smith, representing the Oregon Small Business Association. “What we are doing is taxing businesses out of business.”

Jonathon Polonsky, CEO of the Northwest convenience store chain Plaid Pantry, added that the plan won’t “bring nearly the revenue anticipated” because customers will be driven away “to illegal, untaxed sources.”

Brown said the tax hike is reasonable, as it would put Oregon’s cigarette tax rate closer to Washington and California.

“Raising the tobacco tax by $2 per pack will put Oregon on par with nearby states,” she said. “It’s an effective and proven way to get people to quit smoking.”

The governor is also considering paying down its Medicaid costs through a tax on employers who don’t provide workers affordable health care coverage.


Follow Sarah Zimmerman on Twitter at @sarahzimm95 .