MICHIGAN VAPOR TAX IS WRONG POLICY, DISREGARDS TOBACCO HARM REDUCTION

June 22, 2020

By: Lindsey Stroud

KEY POINTS:

  • Senate Bill 781 would tax electronic cigarettes at 18 percent the wholesale price.

    • The first $250,000 collected from the tax would be deposited in the Department of Treasury for “tax enforcement,” the next $2.5 million would be dispersed to “local health departments for local public health programs,” the next $2.5 million would be used for “enforcement and compliance purposes under the youth tobacco act,” and the remaining balance would be deposited into Michigan’s General Fund.

  • Excise taxes, often referred to as “sin” taxes, are commonly applied to cigarettes, alcohol, and sugary products to deter their consumption. Policymakers justify such taxes because “sin” products are said to be associated with high health care costs that burden state governments.

  • Excise taxes are highly regressive and disproportionately impact lower income persons. For example, tobacco taxes disproportionately impact lower-income people, who spend a greater share of their income on tobacco products.

  • According to the 2017 Michigan Behavioral Risk Factor Survey, in 2017, 60.6 percent of Michigan smokers had household incomes under $34,999, and 35.9 percent reported incomes of less than $20,000.

    • Uninsured adults also smoke at higher rates than insured Michigan adults. In 2017, 34.2 percent of smokers reported having no insurance, compared to 18.2 percent who were insured.

    • Current vapor product use “decreased with increasing household income level.”

  • Deeply problematic with Michigan’s proposed vapor tax is that the Great Lakes State has squandered away existing tobacco monies. Indeed, in 2019, Michigan collected an estimated $1.2166 billion in revenue from tobacco taxes and settlement payments. In the same year, Michigan dedicated only $1.6 million to tobacco control efforts, including education, prevention and programs to help smokers quit.

  • Lawmakers should note that the use of electronic cigarettes can actually reduce health care costs. For example, a 2015 policy analysis by State Budget Solutions examined electronic cigarettes’ impact on Medicaid spending. The author estimated Medicaid savings could have amounted to $48 billion in 2012 if e-cigarettes had been adopted in place of combustible tobacco cigarettes by all Medicaid recipients who currently consume these products. This would have amounted to over $1.5 billion in Medicaid savings to Michigan in 2012.

  • Policymakers should also note that Michigan already collects sales taxes from e-cigarettes. In 2018 the Great Lakes State collected over $38 million in taxes from the vapor industry. Indeed, in 2018, the entire economic impact of the vapor industry on the state amounted to over $608 million.

Legislation making its way through the Michigan Legislature would create an excise tax on electronic cigarettes and vapor products. Senate Bill 781 would tax electronic cigarettes at 18 percent the wholesale price. The first $250,000 collected from the tax would be deposited in the Department of Treasury for “tax enforcement,” the next $2.5 million would be dispersed to “local health departments for local public health programs,” the next $2.5 million would be used for “enforcement and compliance purposes under the youth tobacco act.” Any remaining balance would be deposited into Michigan’s General Fund.

Excise taxes, often referred to as “sin” taxes, are commonly applied to cigarettes, alcohol, and sugary products to deter their consumption. Policymakers justify such taxes because “sin” products are said to be associated with high health care costs that burden state governments.

Often, these taxes are highly regressive and disproportionately impact lower income persons. For example, 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.”

According to the 2017 Michigan Behavioral Risk Factor Survey, in 2017, 60.6 percent of Michigan smokers had household incomes under $34,999, and 35.9 percent reported incomes of less than $20,000. Uninsured adults also smoke at higher rates than insured Michigan adults. In 2017, 34.2 percent of smokers reported having no insurance, compared to 18.2 percent who were insured. The results were similar among adults who used electronic cigarettes. Indeed, current vapor product use “decreased with increasing household income level.”

Further, electronic cigarettes and vapor products are tobacco harm reduction tools and have helped millions of American adults quit smoking. Indeed, a 2019 study found that e-cigarettes are twice as effective in helping smokers quit, compared to traditional nicotine replacement therapies, including gums and lozenges.

As a tobacco harm reduction product, e-cigarettes are significantly less harmful than combustible cigarettes. Cigarettes contain nearly 600 ingredients and “when burned, [they] create more than 7,000 chemicals.” Electronic cigarettes create a vapor “generated by heating a solution containing water, nicotine, propylene glycol, vegetable glycerin and typically also some flavoring.”

Numerous public health groups including Public Health England, the Royal College of Physicians, Cancer Research UK, NHS Health Scotland, and the National Academies of Sciences Engineering and Medicine have acknowledged the reduced harm of electronic cigarettes. Indeed, in June, 2019, the American Cancer Society noted that “e-cigarette use [is] significantly less harmful for adults than smoking regular cigarettes […] because e-cigarettes do not contain or burn tobacco.”

Deeply problematic with Michigan’s proposed vapor tax is that the Great Lakes State has squandered away existing tobacco monies. Indeed, in 2019, Michigan collected an estimated $1.2166 billion in revenue from tobacco taxes and settlement payments. In the same year, Michigan dedicated only $1.6 million to tobacco control efforts, including education, prevention and programs to help smokers quit. It is disingenuous that lawmakers would now tax those who have successfully quit smoking due to e-cigarettes.

Moreover, lawmakers intend to deposit moneys from the proposed tax for local health department programs, yet the use of electronic cigarettes can actually reduce health care costs. For example, a 2015 policy analysis by State Budget Solutions examined electronic cigarettes’ impact on Medicaid spending. The author estimated Medicaid savings could have amounted to $48 billion in 2012 if e-cigarettes had been adopted in place of combustible tobacco cigarettes by all Medicaid recipients who currently consume these products. This would have amounted to over $1.5 billion in Medicaid savings to Michigan in 2012.

Policymakers should also note that Michigan already collects sales taxes from e-cigarettes. In 2018 the Great Lakes State collected over $38 million in taxes from the vapor industry. Indeed, in 2018, the entire economic impact of the vapor industry on the state amounted to over $608 million.

Rather than impose draconian taxes on tobacco harm reduction products, Michigan lawmakers should utilize existing tobacco monies for health departments and youth tobacco control programs. It is disingenuous that lawmakers would tax those who have successfully quit smoking using electronic cigarettes and vapor products.

Nothing in this analysis is intended to 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 Michigan, please visit Tobacco Harm Reduction 101’s Michigan page at www.thr101.org/michigan.

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©2020 by Tobacco Harm Reduction 101.