Column: Why are states taxing e-cigarettes?
Cigarette taxes are one of the many sources of revenue that states have come to rely on. Taxing cigarettes makes sense based on the plentiful evidence that smoking imposes significant health care costs on society. As a bonus, cigarette taxes also bring in money for state governments.
States face a fateful choice, though, as e-cigarettes emerge as an increasingly popular alternative to cigarettes. Will the states follow the health evidence or will they follow the money?
Two years ago, we warned states not to follow the lead of Minnesota, the first state to tax e-cigarettes, and described how e-cigarettes can help people quit smoking and improve health outcomes. Unfortunately, some states are moving to do just that, a new Tax Foundation report reveals. Kansas, Louisiana, North Carolina and the District of Columbia have adopted e-cigarette taxes. Other states are considering e-cigarette taxes, and local taxes have been adopted in Chicago, Montgomery County in Maryland, and Cook County in Illinois.
E-cigarettes are sometimes made by the same companies that make cigarettes and, like cigarettes, satisfy users’ craving for nicotine. E-cigarettes may look like cigarettes, at least from afar, and they provide similar sensory stimulation. But, there’s one crucial difference — e-cigarettes don’t kill.
That’s because nicotine isn’t what kills smokers. The killers are the carcinogenic tars and gases, which are absent from e-cigarettes. With e-cigarettes, a heating element converts a liquid solution of nicotine into an aerosol that users inhale as a vapor. Although some ingredients in e-cigarettes may pose small health risks, they pale in comparison to the toll exacted by cigarettes. Many former smokers credit e-cigarettes with helping them to quit or reduce smoking.
Although taxing e-cigarettes doesn’t make sense, there are precautions the federal and state governments should take — for example, keeping e-cigarettes away from minors. Eight states recently enacted minimum-age restrictions, which now exist in all but three states.
So, why would states tax e-cigarettes, a product that saves lives? Maybe they’ve become too focused on revenue and have forgotten why cigarettes are taxed in the first place. Cigarettes damage smokers’ health and harm society by driving up the costs of government medical programs and through the harms of secondhand smoke. Cigarette taxes help cover some of these costs. If e-cigarettes cause smoking to decline, those costs go down and cigarette tax revenue goes down as well, as it should.
Broader fiscal issues may be in play. The National Association of State Budget Officers reports that states reduced personal income taxes in 2016 while raising corporate income taxes and sales and excise taxes (including cigarette and e-cigarette taxes). Some of the push for e-cigarette taxes may come from a desire to drive down unpopular income taxes. But, even if states need more revenue to cut income taxes, they should not tax nicotine users to finance services needed by the general population.
Looking ahead, this debate is likely to get a lot more complicated. The Food and Drug Administration intends to subject e-cigarettes to the same regulatory authority that traditional tobacco products face, a move that is expected to cause widespread disruptions to the e-cigarette market. If the FDA loses sight of the difference between e-cigarettes and their truly harmful and deadly tobacco competitors, it’s all the more important that states not lose their way.
Alex Brill is a research fellow at the American Enterprise Institute. Previously, he served as the chief economist and policy director to the House Ways and Means Committee. Alan D. Viard is a resident scholar at AEI. They wrote this for InsideSources.com.