D. Dowd Muska


E-Cigarettes: Tax ‘Em If You Got ‘Em

March 24, 2016

They’re so new, we haven’t decided what to call them yet.

E-cigarettes, vapor products, electronic nicotine delivery systems, portable thermal vaporizers -- introduced in 2007, the devices are surging in popularity.

But the tax-mongers don’t care about names. They just want “their” money.

The Tax Foundation has issued a useful primer on vaping and “revenue enhancement.” It’s a preview of coming fiscal attractions, as various elements within the unlimited-government lobby push state legislatures to enact taxes on e-cigarettes.

The Foundation’s Scott Drenkard starts with a basic overview. While Rod Serling-style cigarettes are “shredded tobacco leaves wrapped in paper,” their 21st century competitors are “more complex,” with “a battery, a cartridge containing nicotine fluid that can also include flavorings, an atomizer (usually a heated coil), an LED light that turns on when the device is in use (and is sometimes designed to simulate the flame from a cigarette), and a sensor which detects when a person is inhaling and activates the atomizer and LED light.”

So the similarity between the types of “cigarettes” is “largely aesthetic.” As a health risk, the likeness all but vanishes. No one with a functioning brain questions the research linking smoking -- real smoking, that is -- to lung ailments, strokes, and heart problems. For vapers, the threat isn’t remotely comparable. A “major literature review study” in 2014 concluded that “some residual risk associated with [vapor] use may be present, but this is probably trivial compared with the devastating consequences of smoking.” Last summer, a Public Health England report determined that “e-cigarettes are around 95% less harmful than smoking.” In 2011, a paper found that “electronic cigarettes show tremendous promise in the fight against tobacco-related morbidity and mortality.”

Great news for “public health,” right? If vaping eventually replaces smoking, imagine the lives that will be saved. Imagine the reduction in healthcare costs.

But imagine all that foregone tax revenue.

Minnesota was the first to act. In 2012, it imposed a tax of 95 percent on the wholesale cost of vaping products. But the levy wasn’t the result of law. In an absurd ruling, the state’s Department of Revenue decided that the devices fell under the statutory definition of “tobacco products.” North Carolina’s GOP-majority general assembly, and Republican governor, were the first to tax vaping via legislation. In 2015, Kansas and Louisiana -- both with GOP statehouses and chief executives -- followed suit.

The Obama recovery is finally starting to gain some steam. A few weeks ago, the White House’s Council of Economic Advisers blogged that in the last “24 months, the private sector added 5.6 million jobs, the most in any two-year period since 1999.” In 2015, earnings rose in 21 of the 24 industries tracked by the Bureau of Economic Analysis. But many states are struggling with deficits. (Thanks, Medicaid expansion.) So look for Kentucky, Connecticut, Illinois, Alaska, Oklahoma, and Alabama as the next vape-tax adopters.

Yet winning legislative majorities, and gubernatorial signoffs, for the levies could prove tricky. The popularity of vaping has drawn intense interest from tax-grabbers, but surging sales is also creating a powerful lobby.

Grover Norquist, moonbats’ bête noire, is organizing a nationwide network of e-cig advocacy. The president of Americans for Tax Reform (ATR) told The Washington Examiner that “the next election, at the presidential level, and a lot of other levels, is going to be determined by the vaping community.” Okay, maybe that’s a stretch. But vapers’ dedication runs deep, and Norquist is not far off in calling their community a “movement.”

Then there’s the Smoke-Free Alternatives Trade Association (SFATA). “[C]ommitted to providing an alternative to combustible tobacco products for adult smokers,” the organization “represents a wide cross section of the … industry including distributors, manufacturers, retailers and consumers of … electronic cigarettes and the liquid solutions they contain.” SFATA estimates U.S. “vape stores” at 15,000, in addition to 1,200 “manufacturers of e-liquid,” 22 “manufacturers of hardware,” and “13 assemblers of finished products.” In all, the industry employs 70,000.

That kind of economic muscle generates political juice. In February, 100 SFATA members joined forces with ATR to meet with fedpols “in an effort to convince them to curb the implementation of the Food and Drug Administration’s regulatory assault and pending [regulation] on the sale and availability of electronic cigarettes and vapor products.” Given Norquist’s contacts and partnerships with politicians and activists at the state level, taxaholics face a formidable foe in their crusade to target e-cigs.

Vaping Nation is 10 million strong and growing. Offend it and risk serious consequences.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

# # # # #