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Research & Commentary: Washington E-Cigarette Tax Will Vaporize Tobacco Harm Reduction

February 25, 2019

Legislation would apply a 95 percent tax on e-cigarettes and vaping devices.

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.

The following articles provide more information about tobacco harm reduction.

Vaping, E-Cigarettes, and Public Policy Toward Alternatives to Smoking
https://www.heartland.org/publications-resources/publications/vaping-e-cigarettes-and-public-policy-toward-alternatives-to-smoking
For decades, lawmakers and regulators have used taxes, bans, and burdensome regulations as part of their attempt to reduce the negative health effects of smoking. Recently, some have sought to extend those policies to electronic cigarettes. This booklet from The Heartland Institute urges policymakers to re-think that tax-and-regulate strategy. Policymakers should be mindful of the extensive research that supports tobacco harm reduction and understand bans, excessive regulations, and high taxes on e-cigarettes often encourage smokers to continue using more-harmful traditional cigarette products.

Research & Commentary: Vaping Taxes and Bans Hurt Smokers Trying to Quit
https://www.heartland.org/publications-resources/publications/research--commentary-vaping-taxes-and-bans-hurt-smokers-trying-to-quit
In this Research & Commentary, Heartland Institute Senior Policy Analyst Matthew Glans and State Government Relations Manager Lindsey Stroud examine vaping bans and taxes and consider how such measures block or limit what is for many smokers an effective method for halting the use of tobacco cigarettes.

Qualitative Study on E-cigarettes Shows More Evidence of Tobacco Harm Reduction
https://www.heartland.org/publications-resources/publications/qualitative-study-on-e-cigarettes-shows-more-evidence-of-tobacco-harm-reduction?source=policybot
In this Research & Commentary, Heartland Institute State Government Relations Manger Lindsey Stroud examines a study, published in The International Journal of Environmental Research and Public Health in June 2016, that provides additional evidence showing e-cigarettes and vaporized nicotine products (VNPs) are an effective tobacco harm-reduction tool.

Nicotine without smoke: Tobacco harm reduction
https://www.heartland.org/policy-documents/nicotine-without-smoke-tobacco-harm-reduction
This report aims to provide a fresh update on the use of harm reduction in tobacco smoking, in relation to all non-tobacco nicotine products but particularly e-cigarettes. It concludes that, for all the potential risks involved, harm reduction has huge potential to prevent death and disability from tobacco use, and to hasten our progress to a tobacco-free society. 

E-Cigarette Primer for State and Local Lawmakers
http://heartland.org/policy-documents/e-cigarette-primer-state-and-local-lawmakers
Joel Nitzkin provides evidence e-cigarettes work as a tobacco harm reduction modality and reviews the arguments against them. He closes with recommendations for actions state and local lawmakers should and should not consider regarding tobacco harm reduction and e-cigarettes. 

Research & Commentary: Qualitative Study on E-cigarettes Shows More Evidence of Tobacco Harm Reduction
https://www.heartland.org/publications-resources/publications/qualitative-study-on-e-cigarettes-shows-more-evidence-of-tobacco-harm-reduction?source=policybot
In this Research & Commentary, Heartland Institute State Government Relations Manager Lindsey Stroud examines a study, published in The International Journal of Environmental Research and Public Health in June 2016, that provides additional evidence showing e-cigarettes and vaporized nicotine products (VNPs) are an effective tobacco harm-reduction tool.

Research & Commentary: New CDC Report Finds Vaping Helps Smokers Quit
https://www.heartland.org/policy-documents/research-commentary-new-cdc-report-finds-vaping-helps-smokers-quit
A new report released by the Centers for Disease Control and Prevention (CDC) found only 0.4 percent of the people who had never smoked tobacco in a CDC study group are current vapers, which the report defines as using a vaping device either every day or some days. The CDC report, the first of its kind, estimates e-cigarette use among U.S. adults using a nationally representative household survey. The report’s findings claim only 3.4 of adults who have never smoked have tried an e-cigarette; 12.6 percent of Americans have tried an e-cigarette; and fewer than 4 percent of the U.S. population are regular e-cigarette users.

E-Cigarettes Poised to Save Medicaid Billions
https://www.heartland.org/policy-documents/e-cigarettes-poised-save-medicaid-billions
In a new report from State Budget Solutions, J. Scott Moody finds e-cigarette use could create significant savings for state governments, especially in their Medicaid programs: “As shown in this study, the potential savings to Medicaid significantly exceeds [sic] the state revenue raised from the cigarette excise tax and tobacco settlement payments by 87%. As such, the rational policy decision is to adopt a non-interventionist stance toward the evolution and adoption of the e-cig until hard evidence proves otherwise.”

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. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, our Consumer Freedom Lounge, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus, host an event in your state, or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Lindsey Stroud, Heartland’s state government relations manager, at lstroud@heartland.org or 757/354-8170.

Author
Lindsey Stroud joined The Heartland Institute in 2016 as a Government Relations Coordinator. In 2017, Lindsey was named State Government Relations Manager.
lstroud@heartland.org