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Research & Commentary: Opioid Tax Will Not Stop Opioid Crisis

April 10, 2019

In this Research & Commentary, Matthew Glans examines a proposed opioid tax in Maine and why these taxes are ill suited to address the opioid crisis.

Opioid abuse in the United States continues to be a growing problem, one the government has repeatedly failed to address, despite multiple attempts. According to the Centers for Disease Control and Prevention (CDC), from 1999 to 2017, U.S. opioid overdose deaths increased six-fold. An estimated 130 people die every day in the United States from an opioid overdose.

The burden of the opioid crisis on the U.S. labor market and health care and criminal justice systems is greater than most people realize. According to the White House Council of Economic Advisers, the national economic burden is estimated to exceed $500 billion annually.

While opioid-related deaths have decreased slightly in Maine over the past year, the state is now considering a reform to combat the crisis and generate revenue for drug mitigation efforts: an opioid tax.

A new proposal, Legislative Document 1362, would create an Opioid Stewardship Fund within the Fund for a Healthy Maine. These funds would be used to provide resources for opioid addiction prevention and rehabilitation services, such as public awareness programs within the state’s schools, new opioids research, and the creation of public and private addiction treatment facilities. These efforts would be funded by a tax assessed against opioid drug manufacturers for opioid drugs purchased by consumers in the state and imposed on the sale and distribution of products that contain opioids, at a rate of 1 cent per morphine milligram equivalent.

The new tax would likely increase health insurance prices, because the higher costs imposed on insurers would eventually be passed along to all customers. However, it’s extremely unlikely the tax would help reduce opioid addiction. Although 38 percent of those with a substance-use disorder consume prescribed drugs, the vast majority of these users purchase the drug illegally from a drug dealer or obtain them from friends or family. Only about one-third of people who abuse prescription painkillers received their prescription directly from a doctor. Additionally, according to CDC, the opioid prescribing rate has been steadily falling since 2012. From 2012 to 2017, the prescribing rate has dropped by more than 25 percent.

Because most opioid abusers do not get their drugs directly from a pharmacist, the proposed tax would primarily affect those using the drug properly, including those with legitimate chronic pain problems or fatal illnesses. One additional concern of patients is that if the tax were to go into effect, insurers might stop offering to cover some opioids completely. Or perhaps manufacturers would stop selling or developing these drugs, which would remove an important pain management tool from the market for patients dying or in severe pain. 

The primary sources of the opioid crisis today are synthetic opioids like Fentanyl and heroin. As it’s already been noted, these illegal drugs would not be affected by the proposed tax, but the tax would most likely drive more abusers to use illegal drugs, which are far more dangerous. This has proven true with most sin taxes; increasing a tax on any good inevitably results in a spike in black market activity.

There are better strategies states can adopt to battle the opioid crisis. The first line of defense for any state should be the creation of a broad Prescription Drug Monitoring Program, which would allow officials to monitor high-risk drugs. Further, many states have already created limits on the number of opioids that can be prescribed and for how long prescriptions can be. More serious illness should be exempted from such limits. States should also closely monitor pain clinics to ensure that opioids are only prescribed when medically necessary.

To protect existing addicts, states should formulate laws to protect people from the legal consequences of carrying, administering, and/or dispensing Naloxone—the medication used to reverse an opioid overdose.

While Maine’s opioid tax is not the best method for addressing the crisis, the proposed education, awareness and rehabilitation efforts under LD 1362 are necessary first steps in combating opioid abuse.

The following documents examine the opioid crisis and the failure of sin taxes in greater detail.


The Underestimated Cost of the Opioid Crisis
https://www.whitehouse.gov/sites/whitehouse.gov/files/images/The%20Underestimated%20Cost%20of%20the%20Opioid%20Crisis.pdf
This paper from the White House Council of Economic Advisers estimates the economic cost of opioid-related deaths using conventional economic estimates for valuing life, the same models routinely used by U.S. federal agencies.

Excise Taxes Are Not the Way to Fight Opioid Deaths
http://www.iwf.org/blog/2808636/Excise-Taxes-Are-Not-the-Way-to-Fight-Opioid-Deaths
Ericka Andersen Sylvester writes for the Independent Women’s Forum about opioid taxes. Sylvester says these taxes are not the most effective means for combatting the opioid crisis.

Postsurgical Prescriptions for Opioid Naive Patients and Association with Overdose and Misuse: Retrospective Cohort Study
https://www.bmj.com/content/360/bmj.j5790
This study examines the effects of varying opioid prescribing patterns after surgery. The researchers conclude the duration of the prescription, rather than dosage, is more strongly associated with misuse.

State Opioid Taxes: Economic and Health Policy Implications
https://www.womeningovernment.org/sites/default/files/Brill_State_Opioid_Taxes.pdf
Alex Brill of Matrix Global writes about opioid taxes and argues that unlike most traditional excise taxes—including those applied to cigarettes, alcohol, and fuel—an excise tax on prescription opioids has unique characteristics that diminish its usefulness as a public policy tool.

The Wages of Sin Taxes
https://www.heartland.org/publications-resources/publications/the-wages-of-sin-taxes
In this paper by Christopher Snowdon of the Adam Smith Institute, the author examines the government’s decision to increase taxes on cigarettes and alcohol and to introduce minimum alcohol pricing in 2016. “The report argues that ‘sin taxes’ (taxes on commodities seen as harmful to health) are ineffective in reducing consumption and are not necessary for recouping lost revenue. The taxes are highly regressive and force the poor to pay for the government’s mishandling of public finances,” wrote Snowdon.

Regressive Effects: Causes and Consequences of Selective Consumption Taxation
https://www.heartland.org/publications-resources/publications/regressive-effects-causes-and-consequences-of-selective-consumption-taxation
In this study authored for the Mercatus Center at George Mason University, Adam Hoffer, Rejeana Gvillo, William F. Shughart II, and Michael D. Thomas examine selective consumption taxes. The authors argue they do little to change individual behavior and are extremely regressive, placing an unnecessary burden on the poor. “The study concludes that selective consumption taxes are both ineffective and regressive, and that improving education and increasing the availability of healthier goods may be better steps than raising taxes on those who can least afford them,” the authors wrote.

Sin Taxes Harm Public Health, Pocketbooks
https://www.heartland.org/news-opinion/news/sin-taxes-harm-public-health-pocketbooks?source=policybot
Jesse Hathaway writes in this article for Budget & Tax News about the ineffectiveness of sin taxes. “Instead of using them as ‘health taxes,’ lawmakers are exploiting sin taxes as ‘stealth taxes’ to boost government revenue through a divide-and-conquer strategy, hitting small groups of people who cannot effectively fight back,” wrote Hathaway.

Ten Principles of State Fiscal Policy
https://www.heartland.org/publications-resources/publications/ten-principles-of-state-fiscal-policy 
The Heartland Institute provides policymakers and civic and business leaders a highly condensed, easy-to-read guide to state fiscal policy principles. The principles range from “Above all else: Keep taxes low” to “Protect state employees from politics.”

Sin Taxes: Size, Growth, and Creation of the Sindustry
https://www.heartland.org/publications-resources/publications/sin-taxes-size-growth-and-creation-of-the-sindustry
Adam Hoffer of the Mercatus Center explores three criticisms of sin taxes. First, the taxation of selected goods as a source of general budget revenue contradicts the standard Pigouvian social welfare argument. Second, the economic burden of sin taxes falls disproportionately on low-income households. Third, the expanding number of goods being taxed in this way results in unproductive preventive and defensive lobbying by the affected industries.

Taxing Sin
https://www.heartland.org/publications-resources/publications/taxing-sin
Richard Williams and Katelyn Christ examine several myths about sin taxes in this Mercatus Center paper. “Recently, however, the arguments for imposing new excise taxes and increasing existing ones have reemerged across party lines and have spawned several myths about the efficacy of sin taxation,” they write. 

The States Most Dependent on Sin Taxes
http://www.governing.com/topics/finance/gov-sin-tax-states-dependency.html
Governing magazine tallied fiscal year 2014 tax revenues states received from taxing alcohol, casinos, tobacco products, or certain kinds of video games. The article outlines the states with the largest share of total tax revenues generated by sin taxes.

The Political Economy of Excise Taxation: Some Ethical and Legal Issues
https://www.heartland.org/publications-resources/publications/the-political-economy-of-excise-taxation-some-ethical-and-legal-issues-1?source=policybot
Excise taxes are used not only to raise revenue but also to alter or punish behavior. In many cases, excise taxes can be called “sin” taxes, because they punish people for politically incorrect behavior, such as smoking or consuming alcoholic beverages. In this article, Robert W. McGee examines the nonrevenue uses of excise taxes and analyzes their propriety from the perspectives of economics, law, and ethics.

The Economics of Sin Taxes
http://www.acton.org/pub/religion-liberty/volume-4-number-2/economics-sin-taxes
James Sadowsky considers sin taxes, how they affect the products they are imposed on, and the public’s recent backlash against such taxes.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Health Care News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database. 

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Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance. In 2012, Glans was named senior policy analyst.
mglans@heartland.org @HeartlandGR