WHOLESALE E-CIGARETTE TAX WOULD VAPORIZE HARM REDUCTION IN ALASKA

May 9, 2019

KEY POINTS:

  • House Bill 94 would impose a 75 percent wholesale tax on e-cigarettes and other, similar tobacco harm reduction products.

  • Although many lawmakers in other states have recently considered creating additional taxes on vaping to deter youth use of these products, the author of H.B. 94 hopes to use the tax to generate revenue.

  • A 2019 study in the New England Journal of Medicine shows e-cigarettes are “twice as effective as nicotine replacement therapy” in helping smokers quit.

  • An estimated three million American adults have used e-cigarettes to quit smoking combustible cigarettes.

  • State Budget Solutions concluded estimated Medicaid savings could have amounted to $48 billion in 2012 had smokers enrolled in Medicaid switched to e-cigarettes.

  • E-cigarettes and vaping devices have also provided positive gains for local and state economies. One analysis found vape shops “generate annual non-online sales of more than $300,000 per store” and average $26,000 in monthly sales.

  • Analyses on the effects of vaping taxes have shown these levies produce devastating results.

  • In 2016, Pennsylvania enacted a 40 percent wholesale floor tax, and required retailers to pay the tax on existing inventory by December 29, 2016.

    • One year after Pennsylvania lawmakers enacted the tax, an estimated 120 vape shops had closed in the Keystone State.

    • A Heartland Institute analysis on the effects of Pennsylvania’s wholesale tax on youth e-cigarette use found young Pennsylvanians in middle and high school actually increased their use of e-cigarettes in the period following the tax’s implementation.

    • 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.

Legislation introduced in Alaska aims to apply the state’s excise tobacco products tax to electronic cigarettes and vaping devices. The bill, House Bill 94, would impose a 75 percent wholesale tax on e-cigarettes and other, similar tobacco harm reduction products.

Although many lawmakers in other states have recently considered creating additional taxes on vaping to deter youth use of these products, the author of H.B. 94 hopes to use the tax to generate revenue.

E-cigarettes and vaping devices have emerged as leading tobacco cessation tools. A 2019 study in the New England Journal of Medicine shows e-cigarettes are “twice as effective as nicotine replacement therapy” in helping smokers quit. An estimated three million American adults have used e-cigarettes to quit smoking combustible cigarettes.

Despite false claims that e-cigarettes aren’t safer than combustible tobacco cigarettes, numerous public health agencies have reported on the reduced harm these products cause for smokers. The Royal College of Physicians (RCP), one of the world’s leading health organizations, first reported the harms of combustible cigarettes in the 1960s. In 2016, RCP noted the “long-term health risks associated with smoking [e-cigarettes] … are unlikely to exceed 5% of those associated with smoked tobacco products.”

Other public health groups that have acknowledged the reduced harm of e-cigarettes include Public Health England, the American Cancer Society, and the National Academies of Sciences, Engineering, and Medicine.

Lawmakers concerned about tax revenue should also note use of e-cigarettes has been proven to help alleviate state budget woes, by reducing smoking-related health care costs. State Budget Solutions concluded estimated Medicaid savings could have amounted to $48 billion in 2012 had smokers enrolled in Medicaid switched to e-cigarettes. In 2017, the R Street Institute analyzed the effects of “1% of smokers [within] demographic groups permanently switching.” Applying the analysis to Medicaid recipients, the R Street author estimated savings “will be approximately $2.8 billion per 1 percent of [Medicaid] enrollees” over the next 25 years.

E-cigarettes and vaping devices have also provided positive gains for local and state economies. One analysis found vape shops “generate annual non-online sales of more than $300,000 per store” and average $26,000 in monthly sales. A study of vape shops in the San Francisco Bay area found these businesses employed on average three workers per store. Moreover, the industry is only expected to grow. One market analysis found the global e-cigarette market “is estimated to reach $44,610.6 million by 2023.”

Analyses on the effects of vaping taxes have shown these levies produce devastating results. In 2016, Pennsylvania enacted a 40 percent wholesale floor tax, and required retailers to pay the tax on existing inventory by December 29, 2016. One year after Pennsylvania lawmakers enacted the tax, an estimated 120 vape shops had closed in the Keystone State. Interestingly, a Heartland Institute analysis on the effects of Pennsylvania’s wholesale tax on youth e-cigarette use found young Pennsylvanians in middle and high school actually increased their use of e-cigarettes in the period following the tax’s implementation. 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.

Alaska lawmakers should refrain from enacting excise taxes on tobacco harm reduction products such as e-cigarettes and vaping devices. These have been effective tools in helping smokers quit and their use should be promoted, not discouraged.

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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