Indiana updated budget proposal includes $2 increase to cigarette tax

Chicago Tribune

24-04-2025

Republican leaders in the Senate and House and Gov. Mike Braun reached a decision on a final budget, which includes raising the cigarette tax by $2 a pack to help address a $2.4 billion deficit.
Last week, legislators received a forecast that projected a $2 billion shortfall for the next budget cycle and an additional $400 million less available in the current budget cycle.
After the forecast, budget architects Sen. Ryan Mishler, R-Mishawaka, and Rep. Jeff Thompson said 'everything is on the table' when it comes to budget cuts. Thompson, R-Lizton, said increasing 'sin taxes' — cigarette, alcohol and gaming — could be considered.
In the updated budget report released Wednesday evening, it increases the cigarette tax by $2 per pack, which will bump up the overall cigarette tax to just under $3 per pack. The budget also increases the tax on closed system cartridges or pre-filled e-cigarettes, open system or refillable electronic cigarettes, moist snuff, alternative tobacco products and cigars. In regards to the cigar tax, the tax can't exceed $3 per cigar.
Senate Democrats, who proposed amendments to the state budget to increase the cigarette tax by $2 a pack, said the increase would generate nearly $800 million in additional revenue.
Approximately 61% of the tax revenues will go into the state general funds and approximately 39% will go toward Medicaid obligations.
The updated budget included cuts to public health programs, higher education and economic development while total reserves decreased by three percentage points to 10%, according to the Indiana Capital Chronicle.
Legislators don't get a pay increase, under the updated budget, and it requires a caseload study for the Indiana Department of Child Services as opposed to ending caps. The updated budget also reduced the 'Freedom and Opportunity' budget item that funds dropout prevention and other K-12 programming and the eligibility for On My Way Pre-K and subsidized child care, according to the Indiana Capital Chronicle.
In Northwest Indiana, the updated budget terminates the compact of the Chicago-Gary Regional Airport Authority.
'Government is doing exactly what Hoosier families have to do. We're living within our means and tightening our belts. This budget reduces government spending while funding our most critical priorities and providing continued income tax relief for Hoosiers,' said House Speaker Todd Huston, R-Fishers, in a statement.
The Indiana Senate Democrats released a statement after the updated budget was released stating that the state's $2.4 billion shortfall 'is the direct result of economic fallout tied to Washington's tariffs and trade instability that began in January.'
The updated budget maintains the 2% increase in public school funding while expanding to universal vouchers in the second year of the budget, according to the statement, while public health is funded at $40 million while Braun promised $100 million for public health under the 'Make Indiana Healthy Again' plan.
'We all agree — we must balance the budget,' according to the statement. 'But we can't balance it on the backs of school kids, working families and aging parents and grandparents while the politically connected continue to benefit.'
Indiana Senate Democrats offered three options for increasing revenue: Generating sustainable revenue, like regulating and taxing marijuana; controlling government spending, like reining in inflated administrative costs like six-figure cabinet salaries; and enacting no-cost reforms, like fully restoring public health funding and establishing a summer commission on tariff impacts.
'This is a defining moment for Indiana,' the caucus said. 'We can play politics with talking points – or we can face the truth and build a budget that actually works for the Hoosiers who sent us here.'
The legislature is expected to vote on the budget Thursday. As of press time, the legislature had not discussed the budget.