OREGON CIGARETTE AND VAPE TAX WOULD VAPORIZE TOBACCO HARM REDUCTION

May 8, 2019

KEY POINTS:

  • In response to Gov. Kate Brown’s request to fund Oregon’s fledgling Medicaid program, lawmakers introduced legislation that would raise the Beaver State’s excise tax on combustible cigarettes.

  • House Bill 2270 would increase the cigarette excise tax by $2, bringing the total tax to $3.33 per pack of 20 cigarettes.

    • The funds collected will be “appropriated to the Oregon Health Authority for health-related programs.

  • House Bill 2123 would tax vaping products at two different rates:

    • a 95 percent wholesale tax would apply to “inhalant form nicotine that is sold separately from an inhalant delivery system,

    • and a 75 percent wholesale tax would be imposed on devices “containing inhalant form nicotine and does not require any additional components for use.

  • House Bill 2159 would apply a 95 percent wholesale tax on vaping devices.

  • Both H.B. 2270 and H.B. 2159 would deposit generated revenue into the state’s general fund. No funds would be earmarked for tobacco prevention and cessation efforts.

  • Cigarette are unreliable and disproportionately impact lower-income persons.

    • A Cato Journal article notes from 2010 to 2011, “smokers earning less than $30,000 per year spent 14.2 percent of their household income on cigarettes, compared to 4.3 percent for smokers earning between $30,000 and $59,999 and 2 percent for smokers earning more than $60,000.”

  • Oregon lawmakers want to provide additional funding for Medicaid by taxing e-cigarettes, which save states money by reducing smoking-related health care costs.

    • One analysis estimated states’ combined Medicaid savings would have amounted to $48 billion in 2012 if all Medicaid recipients who smoked switched to e-cigarettes. A recent study estimated Medicaid savings to “be approximately $2.8 billion per 1 percent of enrollees” in Medicaid who switch from using tobacco to e-cigarettes over the next 25 years.

  • Taxes do not deter youth use of e-cigarettes. An analysis by The Heartland Institute examined the effects of Pennsylvania’s 2016 40 percent wholesale tax on vaping products. 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. 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 in 2017.

  • Oregon currently dedicates a very small amount of funding, relative to the amount of tobacco-related tax revenues received, to help smokers quit.

In response to Gov. Kate Brown’s request to fund Oregon’s fledgling Medicaid program, lawmakers introduced legislation that would raise the Beaver State’s excise tax on combustible cigarettes. In the same session, Oregon lawmakers also introduced proposals that would apply an excise tax to e-cigarettes and vaping devices, despite these products’ potential to save states money by reducing smoking-related health care costs.

House Bill 2270 would increase the cigarette excise tax by $2, bringing the total tax to $3.33 per pack of 20 cigarettes. The funds collected will be “appropriated to the Oregon Health Authority for health-related programs.”

House Bill 2123 would tax vaping products at two different rates: a 95 percent wholesale tax would apply to “inhalant form nicotine that is sold separately from an inhalant delivery system,” and a 75 percent wholesale tax would be imposed on devices “containing inhalant form nicotine and does not require any additional components for use.”

House Bill 2159 would apply a 95 percent wholesale tax on vaping devices.

Both H.B. 2270 and H.B. 2159 would deposit generated revenue into the state’s general fund. No funds would be earmarked for tobacco prevention and cessation efforts.

Although generating funds to address smoking-related health care costs is laudable, lawmakers should not impose regressive cigarette and vaping taxes. Such taxes are unreliable and disproportionately impact lower-income persons. Moreover, applying taxes to tobacco harm reduction products such as e-cigarettes ignores the public health benefits these products provide to millions of smokers and unfairly punishes those who have quit smoking.

Lower-income Americans tend to spend a greater share of their disposable income on cigarettes, which means they are disproportionately impacted by cigarette tax increases. A Cato Journal article notes from 2010 to 2011, “smokers earning less than $30,000 per year spent 14.2 percent of their household income on cigarettes, compared to 4.3 percent for smokers earning between $30,000 and $59,999 and 2 percent for smokers earning more than $60,000.”

Cigarette taxes are also notoriously unreliable revenue sources. Often, cigarette tax increases result in long-term revenue shortfalls. From 2001 to 2011, “revenue projections were met in only 29 of 101 cases where cigarette/tobacco taxes were increased,” according to the National Taxpayer Union Foundation.  Moreover, a decline in cigarette consumption caused cigarette tax revenue “to drop by an average of about 1 percent across all states from 2008 to 2016,” Pew Charitable Trusts notes.

Even more vexing, Oregon lawmakers want to provide additional funding for Medicaid by taxing e-cigarettes, which save states money by reducing smoking-related health care costs.

Despite a never-ending fearmongering campaign, e-cigarettes are significantly less harmful than combustible cigarettes. In 2015, Public Health England (PHE), a renowned public health agency, declared e-cigarettes to be 95 percent less harmful than tobacco cigarettes. In 2018, PHE reiterated this, finding “vaping is at least 95% safer than smoking.” Other public health groups, including the Royal College of Physicians; National Academies of Sciences, Engineering, and Medicine; and the American Cancer Society have also acknowledged the reduced harm of e-cigarettes.

Smokers transitioning to e-cigarettes alleviate out-of-control state Medicaid budgets. One analysis estimated states’ combined Medicaid savings would have amounted to $48 billion in 2012 if all Medicaid recipients who smoked switched to e-cigarettes. A recent study estimated Medicaid savings to “be approximately $2.8 billion per 1 percent of enrollees” in Medicaid who switch from using tobacco to e-cigarettes over the next 25 years.

Unfortunately, proponents of vaping taxes and restrictions say these measures deter youth use of e-cigarettes, despite no evidence to support such unwarranted claims.

An analysis by The Heartland Institute examined the effects of Pennsylvania’s 2016 40 percent wholesale tax on vaping products. 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. 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 in 2017.

Perhaps most troubling about these proposals is that Oregon currently dedicates a very small amount of funding, relative to the amount of tobacco-related tax revenues received, to help smokers quit. Oregon spent only $8.2 million on tobacco prevention and cessation in 2018, despite receiving an estimated “$353.1 million in tobacco settlement payments and taxes” in the same year.

In short, Beaver State lawmakers should avoid relying on tobacco taxes to fund programs other than tobacco cessation and education efforts. Further, rather than applying “sin taxes” to products that have helped millions of smokers quit, lawmakers should celebrate the benefits of electronic cigarettes and vaping devices.

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.

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