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GEORGIA LAWMAKERS SHOULD REFRAIN FROM USING SIN TAXES FOR BUDGET CUTS

June 25, 2020

By: Lindsey Stroud

KEY POINTS:

  • House Bill 882 would increase Georgia’s excise tax on cigarettes by $0.98 per pack, from $0.37 to $1.35 a pack. The legislation would also tax consumable vapor products at a rate of $1.25 per fluid milliliter. Interestingly, the legislation would decrease the tax on all cigars other than little cigars, from 23 percent the wholesale price to 12 percent.

  • The Georgia Senate recently passed their FY 2021 Budget Proposal which included “spending cuts of 11 percent, approximately $2.6 billion.”

  • Sin taxes are inherently unreliable, and are deeply regressive.

  • 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.”

  • Cigarette tax revenue is already decreasing in Georgia.

  • In FY 2016, Georgia collected $175.4 million in cigarette tax revenue. This decreased to $171.4 million in FY 2018, despite the cigarette tax remaining at $0.37 per pack.

  • In Georgia, lower income adults are more likely to be current cigarette smokers.

    • According to the Georgia Behavioral Risk Factor Surveillance System, in 2014, 73 percent of current smokers had incomes of $34,999 per year or less.

    • 33.5 percent of smokers had incomes that were less than $15,000.

    • In 2014, over 31 percent of smokers in Georgia had less than a high school education, compared to 5.6 percent of smokers that were college graduates.

    • Uninsured adults were twice as likely to smoke, with 31.4 percent of current smokers having no health insurance, compared to 15.4 percent that had health insurance in 2014.

The per-milliliter tax vapor tax will disproportionately impact vapor products and will virtually wipe out every small business that specializes in the sale of vapor products.

  • Later-generation open-system “mods” are disproportionately affected by per-mL taxes because e-liquid is available in larger quantities compared to closed pod systems. A $1.25 per mL tax on a 120 mg bottle of e-liquid would amount to a total tax of $150, but a pod system containing 0.5 mg of nicotine would only be subject to a tax amounting to 62.5 cents.

  • The proposed tax could possibly wipe out the $644 million vapor industry in the Peach State. In 2018, the industry created 2,532 direct vaping-related jobs, including manufacturing, retail, and wholesale jobs in Georgia, which generated $87 million in wages alone. Moreover, the industry has created hundreds of secondary jobs in the Peach State, bringing the total economic impact in 2018 to $644,293,500. In the same year, Georgia received more than $38 million in state taxes attributable to the vaping industry.

After recently introducing similar legislation, lawmakers in the Peach State are seeking to generate revenue from increasing the state’s excise tax on cigarettes and creating a draconian tax on electronic cigarettes and vapor products.

House Bill 882 would increase Georgia’s excise tax on cigarettes by $0.98 per pack, from $0.37 to $1.35 a pack. The legislation would also tax consumable vapor products at a rate of $1.25 per fluid milliliter. Interestingly, the legislation would decrease the tax on all cigars except little cigars, from 23 percent the wholesale price to 12 percent.

The legislation is gaining traction after the Georgia Senate recently passed their FY 2021 Budget Proposal which included “spending cuts of 11 percent, approximately $2.6 billion.”

Lawmakers often justify the use of sin taxes – excise taxes on products such as alcohol, tobacco and sugary products – due to their use increasing health care costs, often at the expense of the state. Unfortunately, sin taxes are inherently unreliable, and are deeply regressive.

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.”

Cigarette tax revenue is already decreasing in Georgia. For example, in FY 2016, Georgia collected $175.4 million in cigarette tax revenue. This decreased to $171.4 million in FY 2018, despite the cigarette tax remaining at $0.37 per pack.

Moreover, 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.”

In Georgia, lower income adults are more likely to be current cigarette smokers. For example, according to the Georgia Behavioral Risk Factor Surveillance System, in 2014, 73 percent of current smokers had incomes of $34,999 per year or less. Indeed, 33.5 percent of smokers had incomes that were less than $15,000. In 2014, over 31 percent of smokers in Georgia had less than a high school education, compared to 5.6 percent of smokers that were college graduates. Finally, uninsured adults were twice as likely to smoke, with 31.4 percent of current smokers having no health insurance, compared to 15.4 percent that had health insurance in 2014.

Deeply problematic is the inclusion of a steep tax on electronic cigarettes and vapor products. Not only does the per-milliliter tax disproportionately impact open-system vapor products, it will virtually wipe out every small business that specializes in the sale of vapor products.

Several states currently tax vapor products on a per-milliliter basis. Although lawmakers might consider this type of taxation ideal, as it taxes only the nicotine-containing e-liquid used in vaping devices, but this taxing scheme does not provide parity among the different vaping devices, either.

For example, later-generation open-system “mods” are disproportionately affected by per-mL taxes because e-liquid is available in larger quantities compared to closed pod systems. A $1.25 per mL tax on a 120 mg bottle of e-liquid would amount to a total tax of $150, but a pod system containing 0.5 mg of nicotine would only be subject to a tax amounting to 62.5 cents.

Additionally, per-milliliter taxes create incentives for users to avoid the nicotine tax by adding their own nicotine to e-liquid solutions. One company that sells a “concentrated nicotine additive” advertises its product by stating, “Don’t lose business because of outrageous nicotine taxes.” Under some tax regimes, a vape shop can purchase e-liquids with zero nicotine and only pay a tax on a 1 mL packet of nicotine that can be used for any sized e-liquid bottle.

Georgia vapor shops rely on e-liquid used in open mods and would be severely devasted by such an excessive tax. Indeed, the proposed tax could possibly wipe out a $644 million industry in the Peach State. In 2018, the industry created 2,532 direct vaping-related jobs, including manufacturing, retail, and wholesale jobs in Georgia, which generated $87 million in wages alone. Moreover, the industry has created hundreds of secondary jobs in the Peach State, bringing the total economic impact in 2018 to $644,293,500. In the same year, Georgia received more than $38 million in state taxes attributable to the vaping industry.

Lawmakers should refrain from excessive taxes on tobacco and vapor products. Not only is HB 822 a draconian tax, it is deeply regressive and unreliable source of revenue. Further, the tax on vapor products is likely to eradicate many tobacco harm reduction options for Georgia adults.

 

Nothing in this analysis is intended to influence the passage of legislation, and it does not necessarily represent the views of Tobacco Harm Reduction 101. For more information on vapor products in Georgia, please visit Tobacco Harm Reduction 101’s Georgia page at www.thr101.org/georgia.

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©2020 by Tobacco Harm Reduction 101.