State governments are attracted to sin taxes on tobacco and alcohol to remedy budget shortfalls. The National Association of State Budget Officers reported that between 2000 and 2015, states adopted 111 tax increases on tobacco products and an additional 23 tax increases on alcohol.
Sin taxes are essentially excise taxes. They are regressive, unreliable, and often used to fund unsustainable spending increases. Although sin taxes can result in a revenue bump over the short term, over the long term sin tax revenues tend to fall, making it difficult to fund programs dependent on those taxes. Sin taxes also have a negative effect on local small businesses as consumers find ways to avoid the taxes, such as purchasing products outside the jurisdiction enforcing the tax. Tax increases on alcohol and tobacco products disproportionately burden low-income taxpayers.
An emerging tobacco tax issue is the overzealous regulation and taxation of electronic cigarettes and vaporized nicotine products (VNPs). These products offer many advantages to current tobacco smokers: They eliminate the dangerous chemicals and toxins found in tobacco smoke, and thus are great products to reduce the harm current tobacco smokers face. E-cigarettes mimic the sensations of traditional tobacco cigarettes while lessening the negative impacts.
Electronic cigarettes and VNPs are not tobacco products and should not be taxed or regulated in the same way tobacco products are taxed and regulated. It is important that more research be done on these new tobacco replacement products. They have been proven successful in their ability to help people quit smoking, but they are a relatively new product, and they need further study. This research should be done before governments regulate or tax out of existence these new products – which could save lives and save the country billions of dollars in health care costs – out of existence.
The Heartland Institute's experts on alcohol and tobacco issues are available for legislative testimony, speaking engagements, and media interviews.