The rapid growth of the e-cigarette industry has not escaped the attention of policymakers looking to capitalize on a promising source of government revenue — but advocates of higher taxes on e-cigarettes have lost sight of the bigger picture.
This year, Illinois and Vermont became two of the latest states to adopt higher e-cigarette taxes, joining 10 other states that have enacted similar tax hikes since 2010. Cities are getting in on the action as well, with Chicago and the District of Columbia levying their own taxes on vaping products.
In Vermont, where e-cigarettes were previously cheaper than combustible cigarettes, they will now cost about the same. The legislation’s sponsor, Vermont Representative George Till, explained, “We are trying to keep the tax across all nasty things the same.”
But while tax parity between e-cigarettes and combustible tobacco products might seem sensible, proposals to jack up prices on e-cigarettes threaten to undermine policymakers’ broader goals of improving public health.
The primary objective of high taxes on tobacco products is to reduce consumer demand and curb the significant costs, including nearly $170 billion in direct medical care and more than $156 billion in lost productivity, associated with smoking. Cigarette taxes — like other “sin taxes” — aim to change behavior and mitigate the spill-over effects of harmful habits.
But the reasons for imposing burdensome taxes on tobacco products largely don’t apply to e-cigarettes. In contrast to combustible cigarettes, e-cigarettes and other vaping products use a battery-powered vaporizer to deliver nicotine through a propylene-glycol solution. Users inhale the vapor, which does not contain most of the 7,000 carcinogens and other toxins released from combustible tobacco products, like cigarettes.
As a result, e-cigarettes are 95 percent less harmful than conventional cigarettes and twice as effective as other nicotine replacement therapies at getting smokers to kick the habit. While e-cigarettes are by no means risk-free, a growing number of health organizations, including the Royal College of Physicians, National Academies of Science, Engineering, and Medicine, and American Cancer Society, have acknowledged that e-cigarettes are far safer than traditional cigarettes and can play a role in tobacco harm reduction.
High taxes on e-cigarettes will discourage current cigarette smokers from switching to these safer alternatives. Economists estimate that a 10 percent increase in price reduces sales of disposable e-cigarettes by approximately 12 percent, and by about 19 percent for reusable e-cigarettes.
Some critics of e-cigarettes worry that vaping serves as a gateway to combustible products, increasing rates of smoking initiation. They argue that high taxes on e-cigarettes are necessary to dissuade non-smokers from experimenting with nicotine. Real-world data, however, suggests that this risk is vastly outweighed by the benefits smokers gain from having access to healthier substitutes for cigarettes.
Even as the popularity of e-cigarettes has surged over the last five years, smoking rates dropped to record lows, suggesting that more smokers are switching to vaping than non-smokers being drawn into smoking. A recent study found that, even under pessimistic assumptions, e-cigarettes will deliver significant public health benefits over the next half-century, extending the longevity of the U.S. population by 580,000 years.
Health considerations aside, as smoking rates continue to crater and tobacco tax revenues decline, the growing e-cigarette market is still a tempting target for policymakers seeking to fill government coffers. Yet, ironically, the net revenue gain from increasing e-cigarette taxes may be much smaller than politicians hope. That’s because states will have to pay the medical bills of many smokers who otherwise might have opted to use e-cigarettes.
One estimate found that if all Medicaid recipients who smoked had switched to e-cigarettes in 2012, state Medicaid programs would have saved a whopping $48 billion — more than 10 percent of total Medicaid spending that year. Another more realistic analysis concluded that Medicaid would save $2.8 billion over 25 years from just 1 percent of smokers permanently switching to e-cigarettes.
Since you began reading this article, chances are several Americans have died of a smoking-related illness — and 480,000 more will have died by the end of the year. As policymakers seek to end this scourge, they should be encouraging smokers to switch to e-cigarettes, not penalizing users with onerous taxes. The misguided tax proposals spreading across the country will lead to worse health outcomes and greater public health costs.