Wisconsin Weighing Smarter Taxes on Heated Tobacco Products

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Key Points:

• Tax Shift Proposal: Wisconsin lawmakers are considering cutting the tax on heated tobacco products (HTPs) in half, from $2.52 to $1.26 per pack, while keeping cigarette taxes unchanged.

• Harm Reduction Goal: Bill sponsors say risk-proportionate taxes would push smokers toward lower-risk products, citing $3 billion in annual smoking-related health costs.

• Science Backing: Studies show HTPs emit up to 90 to 94 percent fewer harmful chemicals than cigarettes, with FDA granting one brand reduced-exposure marketing in 2020.

• Global Evidence: HTP rollouts have driven sharp cigarette sales declines in Japan, South Korea, and Hungary.

• Equity Impact: In Wisconsin, low-income adults are 3.1 times more likely to smoke and have seen far slower declines in smoking rates.

• Bigger Picture: Supporters say lowering HTP taxes could accelerate smoking declines, especially among disadvantaged populations.

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Legislation is circulating in the Badger State that would reduce the tax rate on heated tobacco products (HTPs), a move that could help drive significant reductions in smoking among Wisconsin’s more than half a million adult smokers. In early July, a memo was released seeking sponsorship for LRB 0954/1 and LRB 4041/1, which would redefine the state’s definition of “tobacco product” and establish two distinct tax categories.

Currently, Wisconsin imposes a $2.52-per-pack excise tax on combustible cigarettes. Under the proposed legislation, tobacco products that burn – such as traditional cigarettes – would remain taxed at the current rate, while heated products would be taxed at half that amount, or $1.26 per pack. According to the sponsors’ memo, legislators can “best support tobacco harm reduction by enacting risk-proportionate taxation, whereby the most harmful products are taxed at the highest rate and lower-risk alternatives are taxed at a lower rate than combustible cigarettes.” They argue that the measure is not only sound public health policy but also a prudent fiscal decision for a state that spends more than $3 billion annually on smoking-related health care costs.

Tobacco harm reduction is not a novel concept. Since at least 1976, when renowned tobacco researcher Michael Russell famously observed that people smoke “for the nicotine, but they die from the tar,” manufacturers and consumers alike have sought ways to deliver nicotine without the deadly effects of combustion. Combustible cigarettes contain nearly 700 ingredients and, when ignited, generate thousands of chemicals, including 69 known carcinogens. Eliminating combustion dramatically reduces the risks of nicotine use. The U.S. Food and Drug Administration recognizes a continuum of risk for nicotine products, with combustible cigarettes being the most harmful, followed by cigars, then HTPs, then e-cigarettes, and finally oral nicotine and traditional nicotine replacement therapies, which carry the least risk.

HTPs are similar in look and feel to combustible cigarettes, but instead of burning tobacco, they heat it. The product consists of a tobacco stick inserted into an electronic holder containing a battery and heating blade, which warms the tobacco from the inside. In 2019, the FDA authorized one HTP for retail sale, and in 2020 granted it a Modified Risk Tobacco Product order, permitting reduced-exposure marketing. Studies have shown this product emits 90 to 94 percent lower levels of harmful and potentially harmful constituents compared to cigarettes.

Although U.S. availability of HTPs has been limited by strict regulatory requirements, international markets offer compelling evidence of their potential impact.

In Japan, cigarette sales declined slowly between 2011 and 2015, but the pace of decline accelerated sharply after HTPs were introduced in 2016. Between 2011 and 2023, total cigarette sales dropped by an unprecedented 52.7 percent, while HTP sales increased by 149 percent annually between 2016 and 2018. Even the American Cancer Society, a staunch opponent of tobacco harm reduction, has acknowledged that HTPs “likely reduced cigarette sales in Japan.”

In South Korea, the launch of one HTP brand in mid-2017 led to the products accounting for 10.5 percent of total tobacco sales by 2019, coinciding with steep early declines in cigarette sales, though these declines have slowed in recent years.

In Hungary, HTP sales have surged dramatically; in July and August 2024 alone, 300 million units were sold, representing a 683 percent increase from January 2020, while monthly cigarette sales fell by 7.5 million packs.

The scientific evidence supports the reduced-risk profile of HTPs. A 2019 review found that they lower levels of harmful and potentially harmful constituents by at least 62 percent. A 2022 Cochrane review concluded there is “moderate-certainty evidence” that HTP users are exposed to fewer toxicants than cigarette smokers. The UK Committee on Toxicity has estimated that HTP aerosols contain up to 90 percent fewer harmful compounds than cigarette smoke.

In Wisconsin, smoking is most common among low-income adults. In 2023, 24.9 percent of adults earning $25,000 or less smoked cigarettes, compared to only 8.1 percent of adults earning $50,000 or more. Low-income adults were 3.1 times more likely to smoke than their higher-income counterparts, and their smoking rates have been declining far more slowly – only 0.4 percent per year between 2003 and 2023, compared to 2.9 percent annually among higher earners.

Policymakers should recognize that risk-proportionate taxation can play a key role in accelerating smoking declines, especially in disadvantaged populations. A reduced tax rate on lower-risk nicotine products like HTPs would encourage more adult smokers to switch, reduce the economic and health burdens of combustible tobacco use, and move Wisconsin closer to a healthier future.

Nothing in this analysis is intended to influence the passage of legislation, and it does not necessarily represent the views of Tobacco Harm Reduction 101.