– April 29, 2019
Share:

Recently, jurisdictions around the nation have proposed punitive taxes or regulations on e-cigarettes and vaping products in their usual paternalistic effort to encourage healthier lifestyles. For example, this week Colorado’s Gov. Polis introduced his tax proposal, which would greatly extend for the first time that state’s tax on nicotine products to e-cigarettes. Legislators in the state seemed to have borrowed talking points from the Food and Drug Administration (FDA) about the unknown dangers of vaping and the “teen vaping” epidemics.

Rather than embrace vaping as a way to help smokers quit, the FDA is threatening to kill the technology altogether if teenagers don’t stop vaping. This stance is infuriating since at this point it is hard to ignore the slew of studies that show the harm-reduction that comes from smokers switching to vaping.

For instance, both Johns Hopkins and the Center for Disease Control (CDC) recognize that while the full health effects of e-cigarettes are not fully known, vaping is much less harmful than traditional tobacco. These results are echoed by many other studies from around the world, including Public Health England, which determines e-cigarettes to be 95 percent safer than traditional smoking.

I am sure we can all agree that teen vaping is something that should be prevented—through reasonable means like prohibiting the sale of e-cigarettes to minors —but that no such prohibition should be used to impede adult smokers away from switching to e-cigarettes.

Unfortunately, the FDA’s scare tactics, along with its refusal to approve any new vaping products, have kept some smokers away from e-cigarettes and put a stop to innovation in the technology in the United States. Even worse, it is sending mixed messages to states and localities making it easy for ban-happy legislators to use these scare tactics to their own advantage, no matter the consequences.

In the Colorado case, legislators are trying to implement a major tax increase on nicotine and tobacco alike. Under the proposal, vaping devices, the pods that contain liquid nicotine, and all other tobacco products would be taxed at 62 percent of their wholesale price. The cigarette tax would more than triple.

Talking about the proposed regulation, Colorado Governor Jared Polis explained, “We have a moral imperative to reduce teen smoking and vaping. We have financial imperative for public health.” He added that the policy was personal to him as his partner’s mother, a lifelong smoker, died at 58 from lung cancer.

I am very sad to hear about the governor’s loss, but I am also sorry to say that this loss should make him all the more opposed to government policies that stymie the improvement of vaping technology.

See, nicotine, while addictive, isn’t what kills smokers. The Hopkins study notes, “E-cigarettes heat nicotine (extracted from tobacco), flavorings and other chemicals to create a water vapor that you inhale. Regular tobacco cigarettes contain 7,000 chemicals, many of which are toxic.” This fact is why European governments, as well as countries like New Zealand, have adopted a much more permissive approach toward vaping and have embraced the technology as a harm-reduction measure.

While Gov. Polis has presented the tax as a means of improving public health, it’s clear the tax is really a way to raise revenue and fill the state’s budget gap. According to estimates, the tax would raise more than $317 million annually for Colorado. The funds will purportedly be used for tobacco prevention, education, cessation and mental-health services but also lower health care costs for people who buy coverage on the individual market but also Colorado Preschool Program. The Denver Post reports:

“Polis’ office estimates these taxes would bring in about $317 million annually, a third of which would go toward expanding preschool — one of the governor’s campaign promises. Another large chunk — $75 million — would help pay for something called reinsurance. It’s essentially insurance for health insurance companies to cover their most expensive patients, an approach that has helped lower premiums in other states. The rest of the money would go to programs that help people quit smoking, behavioral health and after-school opportunities like SAT prep classes.”

Right, so this is meant to pay for the stuff the governor promised during his campaign.

Well, I have bad news for him and for taxpayers in Colorado. The tax is unlikely to raise as much revenue as projected. Taxes like these never do, as research on “sin taxes” in general, and soda taxes in particular, show. After all, the rationale behind any sin tax is to discourage the use and sale of the taxed product. Having been prompted to quit that sin because of its high price, consumers will reap the moral and physical benefits of not indulging, thereby bettering themselves and society.

And so if the tax is effective at discouraging smoking (vaping or regular), it won’t raise much money because people won’t be buying cigarettes. It follows that the government shouldn’t be committing many projected new revenues to fund additional spending, which taxpayers will end up having to shoulder. What outcome does the government actually prefer: reduced tobacco use or fatter coffers?

If the true goal is reduced consumption, I have bad news for Colorado’s solons. Research reveals that consumers have a knack for replacing one sin with another. Studies show that when the price of a “sinful” item increases, people often substitute an equally “bad” sin for the sin they’ve just left behind. A study by William N. Evans, an economist at the University of Notre Dame du Lac, and Matthew C. Farrelly, a health researcher at RTI International, found that smokers in high-tax states tend to consume cigarettes that are longer and higher in tar and nicotine than smokers in low-tax states. This result is especially pronounced among 18- to 24-year-olds because they have less money and want more bang for their buck. Want to bet that the same will happen in Colorado?

And then, of course, there is also the black market. When the FDA made it tremendously more difficult to buy flavored vaping products (in spite the growing academic consensus that flavors help smokers switch away from cigarettes) for companies like JUUL, off-brands black market suppliers appeared immediately to supply those flavors to consumers.

This reality means that not only won’t the government raise the revenue it is hoping for and has earmarked for new spending, but it also won’t do much to reduce the consumption of tobacco and vaping product. Unfortunately, these foolish mistakes will be made on the back of smokers who may get to switch away from tobacco.

Share:

Veronique de Rugy

listpg_veroniqueDeRugy
AIER Senior Fellow Veronique de Rugy is also a Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist. Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy.
Get notified of new articles from Veronique de Rugy and AIER. SUBSCRIBE