House approves cigarette tax increase

By Ashley Griffin with Jamey Dunn contributing 

Illinoisans could see higher-priced tobacco products under the emerging Medicaid reforms.

On Friday, Senate Bill 2194, which is an important component in the multi-bill Medicaid reform legislation that aims to cut $2.7 billion from the state’s Medicaid liability, passed on the House floor with 60 “yes” votes and 52 “no” votes. The proposed legislation features a $1-a-pack cigarette tax and would increase taxes on other tobacco products, such as cigars and loose tobacco, to bring them in line with the taxes on cigarettes.

Rep. Barbara Flynn Currie, sponsor of the bill, said that the tax would bring in about $700 million, including federal Medicaid matching funds. She said the revenue estimates take the possibility of declining tobacco sales into account. She said that since the state raised the cigarette tax a decade ago, the revenues have gotten smaller but not disappeared. “Yes, there’s a bit of decline over time because nationwide smoking rates are on the decline, but we still have a lot more revenue from that increase than we would have [without it].”

Advocates of the bill believe that the tax would not only generate new revenue, it would also improve public health in Illinois. “If there is a public health initiative that can result in 60,000 people quitting smoking, that can result in 60,000 deaths avoided, that can result in decreasing the number of youth that may start smoking by 80,000 while stabilizing a very important and crucial safety net of Medicaid in our state, then I will buy that for $1,” said Dr. LaMar Hasbrouck, director of the Illinois Department of Public Health.

Frank Chaloupka, an economics professor at the University of Illinois at Chicago, said an increase in the tobacco tax would generate new revenue, save money on treating diseases caused by tobacco use and reduce other economic effects, such as lost productivity. “Tobacco tax increases are what I would consider a win win win.” He estimates that the state spends $1.8 billion through the Medicaid program to treat tobacco-related diseases, and tobacco use causes $5 billion in lost productivity in the state. Chaloupka, who has been studying tobacco tax policy for more than 20 years, said the increase would cause almost 60,000 current smokers to quit and keep more than 77,000 kids from every taking the habit up. “Kids are very responsive to increases in taxes and prices,” he said. “Because people stop smoking, because fewer kids take up smoking, we’re looking at significant pubic health benefits.”

But some argue that the tax increase would hurt Illinois businesses. According to Bill Fleischli, executive vice president of the Illinois Petroleum Marketers Association, testified in a committee hearing that retailers could see 20 percent reduction in cigarette sales under the new tax and could lead to many smokers going out of state to purchase cigarettes. “Our customers who purchase their cigarettes are going to border communities, the Internet or through illegal vendors, costing us money and the state of Illinois money in sales tax. A tax will take $300 million out of the retail community,” Fleischli said.

Rep. Jim Sacia — a Pecatonica Republican whose district borders Wisconsin and Iowa, said that he has gotten many calls urging him to vote against the increase. But he says that his view on it has “evolved” because of the budget challenges the state is facing. “We are in the midst of the worst crisis this state has ever seen,” he said. “It’s a tough vote, but it’s the right vote

The proposal will make changes to the hospitals assessment program in order to bring in more federal matching funds. Curry said that tweak would produce about $100 million in revenue. The proposal would also set  requirements for hospitals to have charity care status, which allows them to receive a local property tax exemption. That issue has been the subject of a court ruling and a point of contention between hospitals and the Illinois Department of Revenue.  For more on the standard for charity care status, see Illinois Issues September 2009, Illinois Issues February 2007, and this timeline.

Curry warned today that without approval of the bill, lawmakers would be forced to make even more painful cuts to the state budget. “This bill all by itself is worth $800 million. Without it, as you know, we will have to go back and make further cuts, further terrible, dreadful, Draconian cuts in the Medicaid program. And if we can’t do that, we’re just going to have to cut every other area of state government proportionally,” Currie said.

The legislation now heads to the Senate. Gov. Pat Quinn released a statement today supporting the tax. “Today’s action will improve the health of our people and lower the burden of smoking-related conditions on our Medicaid system, while helping to fill the $2.7 billion Medicaid shortfall and stabilize the system for those that need it. 

We hope senators will follow their colleagues in the House and quickly pass this legislation, which is critical to rescuing Medicaid,” said Quinn in a prepared statement.