By Paul Blair
The holidays bring with them an opportunity to reflect on how fortunate most of the vapor industry and its consumers have been in avoiding unnecessary taxation, onerous regulations and the aggressively relentless prohibitionist movement. This also is a good time of year to look back at the rise in popularity of vapor products over a very short period of time. These innovative technology products have helped many achieve the American Dream. For others, vapor products have helped end a life-long addiction to tobacco.
One might think that as vaping converts smokers to technology over tobacco, lawmakers and bureaucrats would celebrate. Unfortunately, that would neglect the perverse incentives many politicians have in their quest to halt the growth of this industry.
Both government actors and private sector competitors have justifiable, albeit misguided, reasons for wanting to preserve the status quo and their bottom lines. The federal, state, and local governments who collect cigarette tax revenue make more money off of the sale of cigarettes than retailers, wholesalers, farmers and manufacturers combined. And a lot of that revenue, tens of billions of dollars, is spent on non-public health priorities like transportation and education initiatives.
In January, I predicted that 25-30 states would face threats over the imposition of new excise or “sin” taxes in 2015. Twenty-six and the District of Columbia considered proposals to do just that, up from 15 in 2014.
This past year, three additional states successfully raised taxes on electronic cigarettes and vapor products. Minnesota (95 percent wholesale), North Carolina (5 cents per ml), Kansas (20 cents per ml), Louisiana (5 cents per ml) and the District of Columbia (70 percent wholesale) now subject the products to higher-thansales taxes, with the last three being signed into law in 2015.
Looking to 2016, it would be naïve to expect the number of tax or regulatory threats to shrink. One of the unfortunate consequences of the Food and Drug Administration’s (FDA) delay in implementing new finalized regulations on the marketing, sale and availability of vapor products on the market is that more states will create regulatory structures themselves. With those discussions, will come increased pressure to consider tax hikes as well.
There are some in the industry who have brushed off the threat of new taxes as a mere cost of doing business. This approach to legislative threats is wrong. Consumers looking to make the switch from high-taxed tobacco to vapor products are currently presented with an economic incentive to do so. For every nickel more that e-liquid costs, a consumer has less of a reason to make the switch to a healthy tobacco-free alternative.
The state regulatory networks, from licensing to distribution controls, necessary to actually collect new taxes on vapor products will also present an issue to all types of businesses. Costs will rise, the type and number of products available will decline, and the market’s growth will stagnate. For many, this won’t simply be the cost of doing business; it will be the end of doing business.
While the industry certainly has some maturing to do of its own, on whole—this is an industry selling products to consumers which are accomplishing what high taxes and stiff regulations on cigarettes never could: ending smoking as we know it.
With growing evidence that vapor products are at least 95 percent less harmful than combustible tobacco products, it will become more and more clear that this isn’t a debate about science; it is a debate about money. So-called public health groups who push for massive new health care programs in the states would rather people keep smoking, because smokers fund their public policy priorities and vapers do not.
E-cigarettes don’t only stand to save lives though; they stand to save tax dollars. With 36 million smokers enrolled in Medicaid and 11 percent of Medicaid expenditures being attributed to smoking, e-cigarette use can save the average state far more tax dollars than it generates from cigarette taxes and Master Settlement payments. The average state would have realized a savings of 87 percent in 2012, according to a State Budget Solutions study.
That fact scares big spenders and proclaimed public-health advocates who don’t want the state to collect less tax dollars. The American Lung Association, American Heart Association, Americans or Nonsmokers Rights (ironically), are among the worst offenders of spreading lies about vapor products because they want more money from consumers and businesses, not less smoking. They prefer the status quo.
Americans for Tax Reform opposes tax hikes and unnecessary regulations and it is my hope that in 2016, more companies, consumers and advocates will get smart on saying no to money hungry legislators whose crocodile tears might make for great television, but stand to genuinely harm the lives of millions.
Paul Blair is the state affairs manager for Americans for Tax Reform.
He can be reached at email@example.com.