Braun, Legislature plan to raise cigarette, tobacco taxes to fill budget gap
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Gov. Mike Braun and top legislative leaders announced Wednesday they plan to triple the state’s cigarette tax to nearly $3 per pack and increase taxes on other tobacco products, raising about $810 million in additional revenue over the next two years.
The announcement comes a week after a new revenue forecast projected the state would have $2 billion less over the next two fiscal years than they expected when they wrote the spending plans that passed the House and Senate earlier this session.
Indiana’s current cigarette tax is 99.5 cents per pack, which is the 39th lowest tax rate among the states and hasn’t been increased since 2007. The proposal will raise that by $2.
To further close the gap between projected revenue and earlier version of the budget, leaders also said Wednesday they would reduce planned spending for public health, higher education and government agencies. The new budget language—which will include the actual dollar figures—had not been released by 6 p.m. Wednesday. But legislative leaders said they expected the proposed amendment to House Bill 1001 to be posted later Wednesday night.
State leaders are trying to pass a budget this week, a prospect made more difficult after learning last week they would need to make cuts to their 2026-27 biennial budget proposals or find other revenue sources. The final plan will need to be approved by the House and Senate before moving to the governor. The deadline for legislative passage is April 29.
Senate budget writer Ryan Mishler, R-Mishawaka, said the new plan will increase taxes on other tobacco products—including cigars and chewing tobacco—by a percentage that’s similar to the cigarette tax hike.
Senate President Pro Tempore Rodric Bray said a byproduct of raising the taxes is that it could discourage tobacco use. He called the cigarette tax hike “pretty good public policy” that could “help persuade people to either not start smoking or stop smoking.”
Leaders said the tax increases would help the state pay for growing Medicaid expenses. Those costs are estimated to increase by more than $1 billion from 2024 to 2027.
The Indiana Chamber of Commerce and the Indy Chamber have heavily advocated for raising the cigarette tax, saying it would contribute to a healthier workforce, decrease Medicaid costs over time and generate revenue.
The Centers for Disease Control and Prevention said increasing the price of tobacco products, such as through sin taxes, is one of the most effective methods to curb use. Several states have raised tobacco taxes significantly, including Midwest neighbor Illinois at nearly $3.
About 16.2% of Hoosier adults said they were smokers in 2022, according to the Indiana Department of Health. That rate is higher than the national average of 14%.