Michigan Governor budget to seek major tax hikes on tobacco, vaping and gaming to address Medicaid gap

Key Takeaways

• FY2027 budget proposal aims to address a projected $1.8 billion Medicaid funding shortfall in Michigan
• Cigarette tax proposed to rise from $2 to $3 per pack; other tobacco wholesale tax from 32% to 57%
• New 57% wholesale tax proposed on vaping products and nicotine pouches, projected at $95 million annually
• Gaming industry also targeted for higher taxes as federal pandemic-era subsidies expire, to support the General Fund
• Budget director Jen Flood said the package protects coverage for about 2.5 million Medicaid residents; Republican opposition expected

2Firsts, February 12, 2026 – 

According to WTVB, Governor Gretchen Whitmer’s proposed fiscal year 2027 budget includes significant tax hikes on tobacco and gaming to address a projected $1.8 billion shortfall in Michigan’s Medicaid funding.

The report said the plan, to be presented to the Legislature that day, calls for raising the per-pack cigarette tax from $2 to $3 and increasing the wholesale tax on other tobacco products from 32% to 57%. It also seeks a new 57% wholesale tax on vaping products and nicotine pouches, which are currently untaxed, projected to generate an estimated $95 million annually for public health and youth mental health services.

The report added that the budget proposal also targets the gaming industry, seeking higher taxes to help stabilize the state’s General Fund as federal pandemic-era subsidies expire.

State Budget Director Jen Flood said the measures are part of a “responsible mix” of revenue enhancements and efficiencies intended to protect healthcare coverage for approximately 2.5 million residents on Medicaid, according to the report.

The report said the Whitmer administration argues these “sin taxes” are necessary to avoid drastic cuts to core services, but they are expected to face stiff opposition from Republican lawmakers who have raised concerns about creating new financial burdens for Michigan families.

Source of the image: WTVB