MICHIGAN CIGARETTE AND VAPING TAX WOULD DO MORE HARM THAN GOOD

April 23, 2019

Michigan lawmakers have introduced legislation that would increase the state’s so-called sin tax on cigarettes and other tobacco products (OTP), and apply a tax on e-cigarettes and vaping devices. House Bill 4188 would increase the state’s cigarette tax by $1.50 from $2.00 to $3.50 per pack. The legislation would also increase the tax on OTP from 32 to 81 percent of the wholesale price and apply the OTP tax to e-cigarettes and vaping devices.

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Sin taxes, also known as excise taxes, are highly regressive and disproportionately impact lower income persons. Moreover, e-cigarettes are a tobacco harm reduction product and should not be subjected to sin taxes, which are typically applied to discourage use of unhealthy products. Although lawmakers may believe taxing e-cigarettes will deter youth use, existing research on recently implemented taxes finds youth e-cigarette use has increased, even in states with high sin taxes.

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Lower income persons are more likely to smoke than higher income persons. Americans with only a high school diploma smoke for a period “of more than twice as many years as people with at least a bachelor’s degree,” according to the Centers for Disease Control and Prevention.

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Lower-income Americans also spend more of their income on cigarettes. From 2010 to 2011, Americans who earned less than $30,000 per year “spent 14.2 percent of their household income on cigarettes.” On the other hand, Americans earning $60,000 or more per year spent just 2 percent of their income on cigarettes during the same period. 

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Moreover, Michigan currently uses very little tobacco money to help smokers quit. In 2018, the state received an estimated $1.2405 billion in tobacco settlement payments and taxes. However, Michigan spent only $1.6 million on tobacco prevention and cessation efforts.

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Aside from the economic consequences of applying sin taxes to e-cigarettes, this misguided measure would also undermine smoking cessation efforts. An estimated three million American adults have used e-cigarettes and vaping devices to successfully quit smoking. Indeed, a 2019 study in the New England Journal of Medicine finds e-cigarettes to be “twice as effective as nicotine replacement therapy” in helping smokers quit.

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Numerous public health groups have acknowledged e-cigarettes to be significantly less harmful than combustible cigarettes including Public Health England, the National Academies of Sciences, Engineering, and Medicine, and the American Cancer Society. The Royal College of Physicians, a respected and renowned public health organization finds e-cigarettes “an effective aid to quitting smoking,” and the health risks of e-cigarettes “is unlikely to exceed 5% of the harm from smoking tobacco.”

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Kenneth E. Warner, professor emeritus at the University of Michigan School of Public Health, is an outspoken opponent of Michigan’s proposed tax on e-cigarettes. Warner says the “benefits of vaping in terms of increasing adult smoking cessation, substantially outweigh the risks of kids becoming addicted to nicotine.” Warner says “the tax on [e-cigarettes] should be sufficiently lower than a tax on cigarettes to encourage adults to consider e-cigarettes as an alternative to smoking.”

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Further, taxes on vaping products do not deter youth use of e-cigarettes, according to recent results. In 2016, Pennsylvania enacted a 40 percent wholesale tax on e-cigarette. However, despite the enormous tax increase, youth e-cigarettes use increased after the tax was enacted.

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According to the 2015 Pennsylvania Youth Survey (PAYS), 15.5 percent of middle and high school students reported using an e-cigarette within the past 30 days. In 2017, PAYS found this increased to 16.3 percent of middle and high school students reporting past 30 day use of e-cigarettes. Notably, e-cigarette use among 10th and 12th graders increased from 20.4 and 27 percent respectively, in 2015, to 21.9 and 29.3 percent of 10th and 12th graders reporting e-cigarette use in 2017.

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Although Pennsylvania’s vaping tax did not deter youth e-cigarette use, it did shut down brick-and-mortar vape shops. One year after the Pennsylvania tax went into effect, an estimated 120 vape shops closed in the Commonwealth. This is problematic because vape shops generate significant revenue for state and local economies. One analysis estimates vape shops “generate annual non-online sales of more than $300,000 per store.” The global electronic cigarette markets “is estimated to reach $44,610.6 million by 2023.”

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Rather than relying on cigarette and vaping taxes, Michigan lawmakers should reform how the state spends tobacco moneys. Cigarette taxes are inherently regressive and disproportionately impact lower income persons. Moreover, lawmakers should avoid placing sin taxes on tobacco harm reduction products because ample research indicates these products are significantly less harmful than combustible cigarettes. Furthermore, despite their intended purpose, sin taxes on e-cigarettes and vaping devices do not reduce youth use.

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Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute or Tobacco Harm Reduction 101.