PROPOSED COLORADO CIGARETTE AND VAPING TAX WOULD BE REGRESSIVE, UNRELIABLE, AND THREATEN HARM REDUCTION

April 29, 2019

KEY POINTS:

  • House Bill 19-1333 would ask voters to raise taxes on cigarettes by 8.75 cents per cigarette, to $2.59 per pack.

  • The proposal would also apply a 62 percent wholesale tax on nicotine products, which would be defined as any product containing nicotine that can be “ingested into the body, whether by vaporizing, chewing, smoking, absorbing, dissolving, inhaling, snorting, sniffing, aerosolizing, or by any other means.”

  • Lawmakers intend for the newly generated revenue to be allocated evenly between health care and “preschool programs and expanding learning opportunities.” Proponents also believe the newly created tax on e-cigarettes and vaping devices will help deter youth use.

  • Existing research shows cigarette taxes disproportionately impact lower-income persons. 

    • Cato Journal article notes that 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 inherently unreliable, especially when used to fund newly created programs.

    • The National Taxpayers Union Foundation found from 2001 to 2011, “revenue projections were met in only 29 of 101 cases where cigarette/tobacco taxes were increased.”

    • Pew Charitable Trusts revealed 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.”

  • Although vape tax proponents believe it will help deter youth use of e-cigarettes, their belief is not backed up by recent evidence. An analysis on the effects of Pennsylvania’s 2016 40 percent wholesale tax found it did not deter youth e-cigarette use.

  • 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.

  • Colorado allocates little funding to tobacco prevention and cessation.

In response to a request by Gov. Jared Polis, lawmakers have introduced legislation that would put cigarette and e-cigarette taxes on the November ballot. If passed, House Bill 19-1333 would ask voters to raise taxes on cigarettes by 8.75 cents per cigarette, to $2.59 per pack. The proposal would also apply a 62 percent wholesale tax on nicotine products, which would be defined as any product containing nicotine that can be “ingested into the body, whether by vaporizing, chewing, smoking, absorbing, dissolving, inhaling, snorting, sniffing, aerosolizing, or by any other means.”

Lawmakers intend for the newly generated revenue to be allocated evenly between health care and “preschool programs and expanding learning opportunities.” Proponents also believe the newly created tax on e-cigarettes and vaping devices will help deter youth use.

Lawmakers should refrain from relying on cigarette taxes as a source of revenue. They are highly regressive and extremely unreliable. Moreover, the draconian tax imposed on nicotine products such as vaping devices will negate the public health benefits these products provide and have little effect on curbing youth e-cigarette use.

Tobacco taxes disproportionately impact lower-income people, who spend a greater share of their income on tobacco products. For example, a Cato Journal article notes that 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 inherently unreliable, especially when used to fund newly created programs. While an increased tax on cigarettes and tobacco products might create short-term fiscal increases, these taxes eventually lead to long-term revenue shortfalls. The National Taxpayers Union Foundation found from 2001 to 2011, “revenue projections were met in only 29 of 101 cases where cigarette/tobacco taxes were increased.” Pew Charitable Trusts revealed 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.”

Even more problematic is the proposal’s intention to tax e-cigarettes and vaping devices—tobacco harm reduction tools that have helped approximately three million American adults quit smoking. A recent study in The New England Journal of Medicine concluded their use is “twice as effective” as nicotine replacement therapy in helping smokers quit.

Moreover, as a nicotine product that is an estimated 95 percent less harmful than combustible tobacco cigarettes, the use of vaping devices can help relieve states’ budget problems, by reducing smoking-related health care costs. A 2017 study found Medicaid savings “will be approximately $2.8 billion per 1 percent of enrollees” over the next 25 years if 1 percent of Medicaid recipients were to switch from combustible cigarettes to e-cigarettes.

Although vape tax proponents believe it will help deter youth use of e-cigarettes, their belief is not backed up by recent evidence. An analysis on the effects of Pennsylvania’s 2016 40 percent wholesale tax found it did not deter youth e-cigarette use.

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.

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. 

Frustratingly, policymakers seem keen on taxing products that have helped smokers quit, while allocating little funding to tobacco prevention and cessation. Of the $292.6 million in tobacco settlement payments and taxes Colorado received in 2018, the state dedicated only $24.2 million of the funds, about 8 percent, to tobacco prevention and education programs.

Lawmakers should avoid relying on tobacco taxes to fund programs other than those that help smokers quit. Moreover, policymakers should embrace the significant health gains e-cigarettes provide and refrain from enacting sin taxes that are meant to discourage their use.

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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