SPRINGFIELD — In his quest to balance his first state budget without making steep cuts, Gov. JB Pritzker resorted to that old standby of lawmakers — sin taxes — to make the numbers work.
Specifically, Pritzker called for a 32 cents per pack increase in the state cigarette tax, which would push that tax to $2.30 a pack.
The governor also turned toward the increasingly popular alternative to tobacco cigarettes for another budget boost. He wants to apply a 36 percent tax to the wholesale price of e-cigarettes, just as the state taxes the wholesale price of tobacco products other than cigarettes.
The administration is projecting the tax on e-cigarettes will generate $10 million a year, while the cigarette tax increase will bring in $55 million.
How reliable those revenue sources will prove to be is still to be determined. There are only nine states that apply an excise tax to e-cigarettes now, although a number of others have bills pending this year to tax them.
The Smoke Free Alternatives Coalition of Illinois, which represents e-cigarette makers, said a tax on the devices will be a blow to public health.
“The governor’s proposed tax would do nothing more than create another hurdle for adults who are trying to quit smoking,” said coalition President Victoria Vasconcellos. “Studies have shown vaping products are among the most useful tools to help adult smokers quit traditional cigarettes. With vaping products proven to be 95 percent less harmful than traditional cigarettes, it seems unethical to tax a person for making better, healthier choices.”
“That’s what I would expect their argument to be,” said Sen. Andy Manar, D-Bunker Hill.
He said that “perhaps” there is a valid health argument to be made, “but we have to strike that balance.”
The American Lung Association in Illinois works to get people to quit smoking and is supporting a bill this year to raise the age to 21 to legally buy tobacco and vaping products.
Kathy Drea, vice president of the association, said the organization supports taxing e-cigarettes.
“E-cigarettes are classified as a tobacco product,” Drea said. “Very recently, the surgeon general and the FDA released information about the fact that e-cigarette use amongst youth is now at epidemic levels. E-cigarette use in Illinois is virtually unregulated. We would 100 percent support taxing e-cigarettes and licensing the retailers.”
Better documented is the effect that increases in the cigarette tax have on sales of cigarettes.
“Given available data from public health research on smoking habits in Illinois, cigarette consumption is likely to continue decreasing over the next few years,” said an entry in the budget book prepared by Pritzker’s office.
It was accompanied by a chart showing cigarette tax receipts dropping from $807 million in the 2016 fiscal year (which ended June 30, 2016) to an estimated $700 million this year. The last cigarette tax hike was in 2012, when it was increased by $1 a pack to $1.98.
Illinois ranks 19th in the country now for the level of its cigarette tax. The only state adjoining Illinois with a higher tax is Wisconsin at $2.52 a pack. It would still be higher if Illinois enacts the latest increase.
However, Illinois will be surrounded by other states with far lower cigarette taxes, including Missouri, which ranks 50th at 17 cents a pack.
“They’re putting nails in our coffins,” said Bill Fleischli, executive vice president of the Illinois Petroleum Marketers Association, Illinois Association of Convenience Stores, who also pointed to the effort to raise the tobacco purchasing age. “They raised the minimum wage, they’re going to try to tax gasoline.”
The cumulative effect is that people will be enticed to go across state lines to find cheaper products.
“They’ll buy their lottery tickets, their grocery items. It will put the small guys out of business,” he said.
Although the number of smokers has dropped considerably from its high point, Fleischli said cigarettes remain the No. 1 selling item in convenience stores.
Manar agreed the issue of diminishing revenue is an issue that will be discussed when the tax increase is subject to legislative hearings.
“I would expect to see data that either supports that revenue proposal or rejects it,” Manar said.
Several questions about the tax proposals to the Pritzker administration were not answered.
Jon Sharp, operations manager of Upper Limits Midwest, which sells e-cigarettes and vaporizers, said the possibility of an e-cigarette tax was something the store expected, but still not something the store was super excited about.
“We’d prefer to see the government implement policies to encourage small businesses,” he said.
One concern he has is the possibility of losing business to online and out-of-state stores.
“You’re further driving business out of Illinois while we’re already losing people,” he said. “I can’t see how this will solve Illinois’ problems; it seems to me we should be trying to attract more jobs and more revenue to the state, not driving out people already here.”
Sharp said the store is planning on negotiating with vendors to make prices lower for customers, in addition to offering a rewards programs to counteract the effect if the tax were to be put into place.