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Research & Commentary: Wholesale E-Cigarette Tax Would Vaporize Harm Reduction in Alaska

May 9, 2019

Proposal would apply a 75 percent wholesale tax on tobacco harm reduction products.

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.

The following articles provide more information about e-cigarettes and 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.

Podcast Series: Voices of Vapers
In this podcast series, State Government Relations Manager Lindsey Stroud talks with researchers, advocates, and policymakers about tobacco harm reduction and electronic cigarettes. The series provides important information about the thousands of entrepreneurs who have started small businesses thanks to THRs and the millions of adults that have used electronic cigarettes and vaping devices to quit smoking tobacco cigarettes.

 

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.

Research & Commentary: Randomized Trial Finds E-Cigarettes Are a More Effective Smoking Cessation Tool than Nicotine Replacement Therapy
https://www.heartland.org/publications-resources/publications/research--commentary-randomized-trial-finds-e-cigarettes-are-more-effective-smoking-cessation-tool-than-nicotine-replacement-therapy
In this Research & Commentary, Lindsey Stroud, a state government relations manager at The Heartland Institute, examines a study in The New England Journal of Medicine that shows e-cigarettes and vaping devices are twice as effective as nicotine replacement therapy (NRT) in helping smokers quit using tobacco cigarettes. Nearly 700 participants were studied during a 52-week period. Researchers found that 18 percent of e-cigarette users reported abstinence, compared to 9 percent of those using NRT. Stroud wrote that “these latest findings provide more valuable information on the public health role that e-cigarettes and vaping devices provide for the 38 million cigarette smokers in the United States,” and she implores policymakers to regulate these devices in a way that promotes, rather than prohibits, their use.

Research & Commentary: Vaping Taxes Do Not Deter Youth Use of E-Cigarettes
https://www.heartland.org/publications-resources/publications/research--commentary-vaping-taxes-do-not-deter-youth-use-of-e-cigarettes
In this Research & Commentary, Lindsey Stroud, a state government relations manager at The Heartland Institute, examines the effects of Pennsylvania’s 40 percent wholesale tax on youth vaping, enacted in 2016. Using data from the Pennsylvania Annual Youth Survey, Stroud found the tax did not curb youth e-cigarette use. In fact, from 2015 to 2017, use of e-cigarettes by young people increased in Pennsylvania.

Research & Commentary: Despite Scientific Evidence, More Americans Believe E-Cigarettes Are as Harmful as Tobacco Cigarettes
https://www.heartland.org/publications-resources/publications/research--commentary-despite-scientific-evidence-more-americans-believe-e-cigarettes-are-as-harmful-as-tobacco-cigarettes
In this Research & Commentary, Lindsey Stroud, a state government relations director at The Heartland Institute, discusses a 2019 study that found the number of Americans who believe e-cigarettes are just as harmful as tobacco cigarettes has increased. Stroud says state legislation that regulates, taxes, and even prohibits e-cigarettes have helped to fuel Americans’ misperceptions and urge lawmakers to move forward with legislation that promotes the use of e-cigarettes as an important tobacco harm reduction tool.

Research & Commentary: Largest Vaping Survey Finds Flavors Play Important Role in Tobacco Harm Reduction
https://www.heartland.org/publications-resources/publications/research--commentary-largest-vaping-survey-finds-flavors-play-important-role-in-tobacco-harm-reduction
In this Research & Commentary, Heartland State Government Relations Manager Lindsey Stroud examines a survey of nearly 70,000 adult vapers in the United States. The survey was completed in response to the U.S. Food and Drug Administration’s recent Advanced Notice of Proposed Rulemaking seeking comment on the role of flavors in tobacco products. The authors found nearly 95 percent of survey respondents were at one time smokers and the majority reported using flavors at the point of e-cigarette initiation. Stroud compares this to other surveys. She concludes, “eliminating flavors will force [vapers] to vape only tobacco-flavored e-cigarettes, which would likely cause them to return to combustible cigarettes.” Stroud also found research has found e-cigarettes are a key tobacco harm reduction product and could help alleviate state budgets by mitigating health care costs.

Podcast Series: Voices of Vapers
In this podcast series, State Government Relations Manager Lindsey Stroud talks with researchers, advocates, and policymakers about tobacco harm reduction and electronic cigarettes. The series provides important information about the thousands of entrepreneurs who have started small businesses thanks to THRs and the millions of adults that have used electronic cigarettes and vaping devices to quit smoking tobacco cigarettes.

 

Research & Commentary: Electronic Cigarettes
http://heartland.org/policy-documents/research-commentary-electronic-cigarettes 
Heartland Institute Senior Policy Analyst Matthew Glans examines electronic cigarettes, tobacco harm reduction, and various proposals to regulate e-cigarette use. E-cigarettes have become one of the most popular nicotine replacement products and a key building block in tobacco harm reduction strategies.

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. 

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 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 finds only 3.4 percent 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.

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, a state government relations manager with The Heartland Institute, at lstroud@heartland.org or 757/354-8170.

Author
Lindsey Stroud is a state government relations manager at The Heartland Institute.
lstroud@heartland.org