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Tobacco Tax Bill, Tweaked Again, Goes To House

Oregon's House of Representatives passed a bill to restore double health insurance for public employees in June 2019. | ELON GLUCKLICH/THE LUND REPORT.
June 18, 2019

SALEM – Gov. Kate Brown's $340 million tobacco tax package is headed to the Oregon House of Representatives.   

The Joint Committee on Tax Expenditures voted 8-3 Tuesday to send House Bill 2270 to the full House, setting up chamber votes on Brown's major legislative priority less than two weeks before the session adjourns.

The bill easily withstood opposition from committee Republicans along with  cigar and vape store owners who argued the tobacco tax hikes and new e-cigarette tax would drive away out-of-state businesses and push young smokers to buy the products online.

One Republican on the tax expenditure committee, Rep. Greg Smith, R-Heppner, joined the committee's seven Democrats in sending the bill Tuesday to the full House floor.

"For multiple years I've advocated for additional funding for mental health needs in the state of Oregon," Smith said. "To be consistent and not have conflict in that message, I need to support this effort.”

The taxes – a proposed $2 per pack tax hike on cigarettes and a new e-cigarette tax, the removal of a 50-cent maximum tax per cigar and the ban of single cigars cheaper than $3 – would raise an estimated $340 million for the Oregon Health Plan over the next biennium.

The $2 tax hike on cigarettes alone is expected to raise about $324 million of that, and 90 percent of those funds will go to the state's medical assistance program, which includes mental health services for low-income Oregonians.

Lawmakers have made numerous changes to the bill since it was introduced at the start of the session as one of Brown's four pillars to plug a $930 million Oregon Health Plan funding gap. Most notably, Democratic leaders amended HB 2270 to refer the taxes to voters before they can take effect. That election would be held in November 2020, and the taxes would take effect the following January if voters approve them.

But lawmakers have continued to tweak the bill. Another change posted late Tuesday morning and quickly adopted restored the per-cigar tax cap, at a higher $1 rate.

The vote came a day after several dozen speakers representing hospitals, medical associations and coordinated care organizations lined up to praise the bill's public health benefits, while owners of tobacco, cigar and e-cigarette businesses assailed the tax hikes.

"We don't have the decades of science on e-cigarettes and the dangers of them that we do with traditional cigarettes because we haven't been around them long enough, but what we've seen should be enough that we should be willing to take swift action,"  Christina Bodamer, a lobbyist for the American Heart Association, said Monday. "E-cigarettes are not an approved (smoking) cessation device and no studies on the safety and efficacy of e-cigarette use have been submitted to the FDA for their consideration."

Her comments came after several e-cigarette company owners assailed the taxes as regressive, mostly harming lower income smokers and arguing that their products don't pose the same health risks cigarettes do.

"This bill is an attack on small businesses and low wage-earning Oregonians who have chosen a safe alternative to cigarettes," said Colin Rau, founder and CEO of Emerald Vapors, a Eugene-based manufacturer, wholesaler and retailer. "I believe in this product, and I believe my customers who say they won't buy their products from Emerald Vapors if the price doubles. Most say they will go online."

Business owners and many Republicans have questioned the state's revenue raising projections for the bill. Oregon stores along the state's northern and southern borders have long reaped a tax windfall from Washington state and California's higher cigarette tax rates. HB 2270 would raise Oregon's cigarette tax rate from $1.33 for a pack of 20 cigarettes to $3.33, putting Oregon's rate on par with its neighbors. That could cause residents of those states to head to Idaho and Nevada instead of Oregon, critics fear.

"I believe that this is an excessive tax hike, and I think we have some questionable data on the amount of (retail) leakage" to those states, Rep. Lynn Findley, R-Vale, said Tuesday. "If we lose all of the Washington people coming to Oregon to buy cigarettes if we have our tax mirrored to them, that's going to be a huge number."

Republicans have also questioned the intent of HB 2270. Oregon Health Authority officials have repeatedly called the tobacco taxes a public health measure to reduce smoking rates, especially among school-aged children.

But Brown and other Democrats have stressed the importance of the funds to fill the nearly $1 billion Oregon Health Plan funding gap that opened at the start of the session, as Oregon and other states that expanded Medicaid under the Affordable Care Act prepare to take on the full cost of the expansion for the first time next year.

Two of Brown's four funding pillars breezed through the Legislature early in the session, with taxes on hospitals and health insurance premiums filling about half of the funding gap. But last month she lost a third pillar, taxes on large businesses that don't provide health insurance coverage to their employees, putting more pressure on Democrats to get the tobacco taxes through.

The referral to voters was seen by Democratic leaders as a way to garner support from several Republicans and moderate Democrats who were on the fence amid heavy industry opposition, and growing consensus behind the scenes that opponents would refer HB 2270 to a vote if lawmakers passed it.

The referral amendment revived the tobacco tax package after it stalled in the House Committee on Revenue for more than two months.

Democrats on the tax expenditure committee said Tuesday they were fine with the taxes bringing in less revenue than projected, if it meant fewer Oregonians were using nicotine products as a result of the higher prices.

"We had a lot of discussion in the House (revenue) committee about whether this is a revenue bill or a health bill," said Rep. Barbara Smith Warner, D-Portland. "I continue to say it is both, and to me the public health benefits of a decrease in smoking, especially among young people cannot be overstated, and if that works so that the revenue is less, so much the better."

Have a tip about the health-care industry or legislation? You can reach Elon Glucklich at [email protected]