VERMONT’S DRACONIAN TAX WILL SNUFF OUT TOBACCO HARM REDUCTION

February 5, 2019

Vermont Lawmakers are hoping to generate revenue from electronic cigarettes and vaping devices through a proposal in the General Assembly that would apply the state’s “92% wholesale price tax on other tobacco products to electronic cigarettes and their paraphernalia.”

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The tax would apply to all electronic cigarette products, including devices and e-liquids that do not contain nicotine. According to the bill’s fiscal analysis, the legislation would generate $1.1 million in revenue in fiscal year 2022. All revenue generated is to be deposited into the State General Fund.

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Such legislation threatens the health gains that e-cigarettes and vaping devices provide as tobacco harm reduction (THR) tools. Research increasingly indicates that it is the smoke in combustible cigarettes that cause the most harms. E-cigarettes are a THR product that effectively delivers nicotine without the associated harm produced in cigarette smoke.

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In 2018, the National Academies of Sciences, Engineering, and Medicine found switching from combustible tobacco cigarettes to e-cigarettes “results in reduced short-term adverse health outcomes in several organ systems.” The same year, the American Cancer Society acknowledged “the exclusive use of e-cigarettes is preferable to continuing to smoke combustible cigarettes.”

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This is consistent with earlier findings. For instance, in 2016, the Royal College of Physicians found e-cigarette use “unlikely to exceed 5% of the harm from smoking tobacco,” concluding that it is “in the interest of public health … to promote the use of e-cigarettes.”

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Moreover, electronic cigarettes can positively impact state budgets by reducing health care costs. An analysis by State Budget Solutions profiled the impact of THR products on Medicaid costs. The authors estimated states could have saved $48 million in Medicaid spending if all Medicaid recipients who smoked switched to e-cigarettes.

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A Policy Study by the R Street Institute analyzed a smaller percentage of Medicaid recipients switching to e-cigarettes. Using a sample size of one percent of Medicaid recipients permanently switching, the authors estimated Medicaid savings to “be approximately $2.8 billion per 1 percent of enrollees” over the next 25 years.

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The proposed legislation in Vermont points to a 40 percent wholesale tax that was imposed on vaping products in the Commonwealth of Pennsylvania in 2016. Although the Pennsylvania Department of Revenue was able to account for the increased revenues the tax brought to the Commonwealth, it failed to acknowledge the negative economic consequences of such an extreme tax.

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By 2017, Pennsylvania’s 40 percent wholesale tax “resulted in the closure of more than 100 small businesses and the loss of several hundred jobs” in the Commonwealth. …. Research indicates that these businesses “generate an annual non-online sales of more than $300,000 per store,” a monthly average of about $26,000. The following year, after Pennsylvania passed its draconian vaping tax, legislation was introduced in an attempt to address the negative externalities with a bill that would “narrow the class of products taxed and lower the amount of tax.”

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Lawmakers interested in protecting public health in Vermont should adjust how they currently use tobacco funds. In 2018, “Vermont received $106.1 million (estimated) in tobacco settlement payments and taxes.” In the same year, the state spent $3.6 million, three percent of tobacco funding received and “42.4 percent of the Centers for Diseases Control and Prevention’s annual spending target,” on tobacco control efforts including education and cessation.

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Draconian taxes on THR products are a disservice to public health and threaten the entire electronic cigarette industry. Vermont lawmakers should refrain from taxing and regulating THR products in a similar fashion to combustible cigarettes and rather promote their use as cessation devices. Research increasingly finds these products are less harmful than combustible cigarettes and their use can actually save states money by reducing health care costs.

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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.