WASHINGTON E-CIGARETTE TAX WILL VAPORIZE TOBACCO HARM REDUCTION

February 25, 2019

KEY POINTS:

  • HB 1863 would expand the definition of tobacco products to include e-cigarettes and vaping devices and apply a 95 percent tax on such products.

  • E-cigarettes are a safe alternative to combustible cigarettes that numerous public health groups find to be significantly less harmful, including Public Health England, the Royal College of Physicians, the National Academies of Sciences, Engineering, and Medicine, and the American Cancer Society.

  • Studies estimate e-cigarettes can reduce health care costs. One study found that if all Medicaid recipients that smoked switched to e-cigarettes, savings to Medicaid would have amount to $48 billion in 2012.

  • Proposed vaping taxes have already negatively impacted Washington’s economy. In 2015, Mt. Baker Vapor, a vaping manufacturer, relocated from Washington to Arizona because of legislation including banning online sales and the imposition of “enormous taxes on the sale of vapor products.

  • Washington uses very little money from tobacco settlement payments and taxes to fund tobacco prevention efforts. In 2018, the state received $563.0 million in tobacco settlement payments and taxes and only spent $1.4 million in state funds on tobacco education and cessation programs.

Washington state lawmakers introduced legislation that would effectively make electronic cigarettes unaffordable for the vast majority of Evergreen State residents. HB 1863 would expand the definition of tobacco products to include e-cigarettes and vaping devices and apply a 95 percent tax on such products. Applying draconian taxes to tobacco harm reduction (THR) products would negatively impact public health and create an economic incentive for businesses to move from the Evergreen State.

Electronic cigarettes have become an effective and safe smoking cessation tool, helping millions of smokers quit combustible cigarettes. Research indicates that it is the smoke in tobacco cigarettes that produces the greatest harms. E-cigarettes can effectively deliver nicotine without these harms.

Numerous public health groups have found vaping devices to be significantly less harmful than combustible cigarettes including Public Health England, the Royal College of Physicians, and the American Cancer Society. In 2018, the National Academies of Sciences, Engineering, and Medicine found e-cigarette use to result in “reduced short-term adverse health outcomes in several organs.” Even Mitch Zeller, director at the Center for Tobacco Products at the U.S. Food and Drug Administration, has said people switching from combustible to e-cigarettes “would be good for public health.”

The use of e-cigarettes could actually help save states money. It’s estimated that harms associated with smoking create “as much as $170 billion in annual health care spending,” with taxpayers paying nearly “60 percent of the cost of smoking attributable diseases.” According to the Centers for Disease Control and Prevention, “American adults who are uninsured or on Medicaid smoke at rates more than double those for adults with private insurance.”

 

Analysis on the impact of e-cigarettes on Medicaid spending offers promise. One study concluded that states would have saved $48 billion in 2012 if all Medicaid recipients that smoked combustible cigarette switched to e-cigarettes. Another study examined 1 percent of the same Medicaid population switching and estimated that Medicaid savings “will be approximately $2.8 billion per 1 percent of enrollees,” over the next 25 years.

Moreover, states that have imposed excessive taxes on THR products have also experienced economic declines. For example, in 2016, Pennsylvania passed a 40 percent wholesale tax on vaping products. Within a year, an estimated 120 vape shops closed in the Commonwealth.

Imposing steep taxes on the e-cigarette industry fails to take into account the economic benefits these businesses provide. According to one analysis, vape shops “generate annual non-online sales of more than $300,000 per store” and average $26,000 in monthly sales. The e-cigarette industry is expected to continue to grow, as the global market “is estimated to reach $44,610.6 million by 2023.”

Proposed vaping taxes have already negatively impacted Washington’s economy. In 2015, Mt. Baker Vapor, a vaping manufacturer, relocated from Washington to Arizona because of legislation including banning online sales and the imposition of “enormous taxes on the sale of vapor products.” In 2015, the tax on vaping products was 60 percent, far less than the currently proposed 95 percent tax.

Even worse, although 75 percent of revenues from THR taxes would be deposited into the newly created “Essential Public Health Service Account” in the 2019-21 biennium, there is no set funding in the account dedicated to tobacco prevention and cessation. Washington state currently spends less than two percent of tobacco settlement payments and taxes on smoking cessation and prevention. In other words, the new tax could easily become just another government slush fund.

Rather than imposing draconian taxes on e-cigarettes and vaping devices, lawmakers should promote their use and reform how the state currently spends tobacco settlement payments and taxes. E-cigarettes are a beneficial tool that can help smokers quit as well as reduce state health care costs. Moreover, the vaping industry has been quite profitable and should continue to grow—adding even further to state coffers—as long as lawmakers don’t tax and regulate the industry into extinction.

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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