The Oregon Health Authority’s Draft 2019 Budget Includes Big Tax Increases For Beer and Cigarettes

The agency's proposal shows a proposed a $800 million hike in sin taxes.

The Oregon Health Authority is proposing at least $800 million in new taxes on tobacco and alcohol, according to a draft copy of the agency's 2019-21 budget.

The 2,050-page document, details of which have not been previously reported, shows the agency hopes to aggressively address the state's growing Medicaid costs.

In 2017, lawmakers plugged a Medicaid hole with a new $600 million hospital tax and also tried, but failed, to raise taxes on alcohol and tobacco.

Hospitals supported that new tax on themselves last year. The alcohol and tobacco industries are unlikely to do the same in 2019, when the OHA faces an $830 million funding gap for the Oregon Health Plan, the state's Medicaid program.

Eleven years ago, for instance, lawmakers referred an 84.5 cent per pack cigarette tax increase to voters. Tobacco companies trounced the measure 60 percent to 40 percent.

If anything, the beer and wine lobby in Salem is even more effective than the tobacco lobby.  Lawmakers haven't made a serious attempt to raise alcohol taxes for nearly a decade.

Although the health agency's proposed budget is clear about its desire to raise funds via tax increases on alcohol and tobacco, Gov. Kate Brown herself has not laid out a tax plan as she campaigns for re-election against the GOP nominee, state Rep. Knute Buehler (R-Bend).

"I don't have any specifics at this point," Brown said in an Oct. 11 endorsement interview with WW. She added that any changes to taxes ought should have two characteristics: bipartisan support and "not raising taxes on hard-working families."

Brown's spokesman, Chris Pair, says the OHA budget is a preliminary draft and has not yet been vetted by Brown's staff.

According to the OHA budget, the agency is proposing raising Oregon's taxes on cigarettes and alcohol to reduce consumption and to boost state revenues. It's a logical move: Oregon's so-called "sin taxes" lag far behind other states, fueling consumption that OHA says causes a variety of harms, including higher health care costs.

The OHA seeks a 150 percent increase in the cigarette tax, from $1.33 to $3.33 a pack.

That $2 per pack increase would bring Oregon's cigarette tax in line with the tax in Washington state and generate nearly $300 million a year in new revenue. The OHA also forecasts the tax hike will reduce smoking up to 15 percent.

"If Oregon does not increase tobacco prices and fund tobacco prevention,  Oregonians – both adults and children – will continue to suffer from the health consequences of tobacco and chronic diseases," the budget document says.

The agency also wants to begin taxing e-cigarettes, and increase the tax on cigars, although it is unclear how much those changes would generate.

OHA also seeks to raise the retail price of beer, wine and cider 10 percent, according to its budget proposal.

"Oregon has not increased the taxes on beer for over 40 years and wine for over 32 years," the budget document explains. "In real terms, beer and wine taxes fall every year because they do not keep up with inflation. The price of alcohol in Oregon is too low. Cheap alcohol fuels excessive drinking and related harms."

Raising the alcohol taxes, some of the nation's lowest, would reduce consumption 5 percent, the OHA says, and bring in real money.

"For the 2019-21 biennium, total new revenues from retail price increases of alcohol are estimated to be $491 million, which would generate additional funding for treatment services, cities, counties and Oregon's General Fund," the budget document says.

Increasing the costs of cigarettes, beer, wine and cider, the OHA says, would lead to better health outcomes and save $52 million in state healthcare spending on smokers and $287 million in lost productivity and health costs for drinkers.

Of course, whether the OHA moves forward with the tax increases depends on a couple of factors. First: whether Brown wins re-election. If she does, she will then pull together all agency budgets and present a governor's budget in the first week of December.

Second, the proposals' success hinges on whether Democrats can win three-fifths super-majorities in both chambers. Oregon law requires a super-majority vote of both the House and the Senate to increase taxes. Democrats are currently one seat shy of that threshold in both chambers.

OHA spokesman Robb Cowie says the draft budget lays out the agency's conceptual thinking and is far from final. He says the agency submitted the document to Brown's office in September but has had no discussion about it with the governor or her staff yet.

"It's an agency request, not a final budget," Cowie says. "The governor's office will make the decision about what goes forward."

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