Higher Tobacco Taxes Bring Indiana $170M in Revenue
INDIANAPOLIS — A new policy report reveals that Indiana’s landmark 2025 tobacco tax increase has curbed tobacco use across the state while providing an increase to state revenue.
The study, released by the CDC Foundation and prepared by Economics for Health, analyzes the immediate market response to the tax hike using comprehensive retail sales data. The early evidence indicates that higher prices are working exactly as intended to reduce smoking rates.
According to the report, an estimated 12.6 million fewer packs of cigarettes were sold in Indiana during the final six months of 2025 compared to a simulated control state. This represents a sharp 13.8% decline in overall pack sales.
The drop follows a legislative change enacted on July 1, 2025, which raised Indiana’s cigarette tax by $2.00—shifting from $0.995 to $2.995 per pack. The same law doubled the state’s electronic cigarette tax from 15% to 30% and increased taxes on various other tobacco products.
The data highlights several key trends from the second half of 2025:
Higher Retail Prices: Average retail cigarette prices jumped by approximately $2.00 per pack, directly mirroring the statutory tax increase.
E-Cigarette Decline: Electronic cigarette unit sales fell by an estimated 8.3% after the higher tax rates took effect.
Premium vs. Value Impact: Higher-priced premium cigarette brands experienced the steepest decline, with sales dropping 19.7%. Lower-cost value brands saw a 12.2% decrease in sales.
Beyond the public health shifts, the policy change has proven highly lucrative for the state. The tax increase generated an estimated $170.4 million in added tobacco tax revenue between July and December 2025. This independent estimate closely aligns with Indiana’s official December 2025 state revenue forecasts.
The study also debunks a common concern associated with tobacco tax hikes: the fear that consumers will simply cross state lines to purchase cheaper products. Researchers analyzed retail data from all states bordering Indiana and found little to no evidence of spillover shopping. There were no meaningful state-level sales increases recorded in Illinois, Kentucky, Michigan, or Ohio following the rate hike.
Public Health Advocates Celebrate Results:
Public health organizations are welcoming the data as a major victory for Hoosier well-being, noting that reduced sales will inevitably lead to improved health outcomes across the state.
Christina Cesnik, the Indiana Government Relations Director for the American Heart Association, emphasized the life-saving potential of the policy:
“The American Heart Association is committed to bringing health and hope to everyone everywhere, which includes protecting youth from the burdens of tobacco and nicotine addiction as well as helping adult smokers quit. Strategies such as tax increases and funding prevention and cessation programs have proven to be effective in reducing tobacco use time after time. This will translate into fewer heart attacks and chronic health conditions that are a direct result of tobacco use.”
The study utilized biweekly retail scanner data spanning from January 2024 through January 2026 to track long-term market trends. Funding for the independent research was provided by the Bloomberg Initiative to Reduce Tobacco Use through Bloomberg Philanthropies.
