Wisconsin lawmakers introduced companion legislation that would impose a so-called sin tax on e-cigarettes and vaping devices. Senate Bill 59 and Assembly Bill 56 would tax vaping products “at the rate of 71 percent of the manufacturer’s list price.” The tax would apply to all e-cigarette products, “regardless of whether the product contains nicotine.” The legislation would be a floor tax, meaning retailers would have to pay the tax on all existing inventory. The bills are in response to Gov.Tony Evers’ budget proposal seeking tax parity between combustible cigarettes and e-cigarettes and vaping devices.

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Because sin taxes are meant to discourage use, they should not be applied to tobacco harm reduction products such as e-cigarettes. A draconian 71 percent tax on e-cigarette products will vaporize the industry in Wisconsin and burden public health.

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Despite unfounded fearmongering campaigns aimed at e-cigarettes and vaping devices, these products have emerged as effective tobacco cessation tools. Nearly three million Americans have used e-cigarettes to quit smoking combustible cigarettes. A 2019 study in the New England Journal of Medicine found electronic cigarettes to be “twice as effective as nicotine replacement therapy” in helping smokers quit.

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The reduced harm of e-cigarettes has been acknowledged by numerous public health agencies including Public Health England (PHE), the Royal College of Physicians, the American Cancer Society, and the National Academies of Sciences, Engineering, and Medicine. In late 2018, PHE reiterated their 2015 finding, declaring “vaping is at least 95% safer than smoking.”

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Further, states are better off when residents switch from combustible cigarettes to e-cigarettes. In fact, one analysis estimated Medicaid savings could have amounted to $48 billion in 2012 if e-cigarettes had been adopted in place of combustible cigarettes by all Medicaid recipients who currently consume cigarettes. A 2017 study found Medicaid savings “will be approximately $2.8 billion per 1 percent of enrollees,” over the next 25 years if one percent of Medicaid recipients switched from combustible cigarettes to e-cigarettes.

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E-cigarettes have also created significant revenues for state and local governments. One analysis finds vape shops “generate annual non-online sales of more than $300,000 per store.” The industry is expected to expand significantly in coming years. Over the past two years, online sales of e-cigarettes grew 41.3 percent from $345 million to $487.7 million. The global electronic cigarette markets “is estimated to reach $44,610.6 million by 2023.”

 

Although vape tax proponents believe it will help deter youth use of e-cigarettes, their belief is not backed up by recent evidence. An analysis on the effects of Pennsylvania’s 2016 40 percent wholesale tax found it did not deter youth e-cigarette use.

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According to the 2015 Pennsylvania Youth Survey (PAYS), 15.5 percent of middle and high school students reported using an e-cigarette within the past 30 days. In 2017, PAYS found this increased to 16.3 percent of middle and high school students reporting past 30 day use of e-cigarettes. 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 of 10th and 12th graders reporting e-cigarette use in 2017.

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Although Pennsylvania’s vaping tax did not deter youth e-cigarette use, it did shut down brick-and-mortar vape shops. One year after the Pennsylvania tax went into effect, an estimated 120 vape shops closed in the Commonwealth. Similar to the Wisconsin bills, Pennsylvania’s tax applied to existing inventory and many business owners were unable to bear such a significant tax burden.

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It is interesting Wisconsin lawmakers would even consider taxing tobacco harm reduction products, as the state dedicates less than one percent of tobacco-related moneys on helping smokers quit. In 2018, Wisconsin received an estimated $791.1 million in tobacco settlement payments and taxes. However, the Badger State spent only spent $5.3 million on tobacco prevention and cessation efforts.

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Rather than creating burdensome taxes on harm reduction products, Wisconsin lawmakers should reform how the state currently uses tobacco funding. Despite alarmist campaigns aimed at e-cigarettes and vaping devices, these products are effective cessation tools. Even better, they can save money by reducing health care costs and generate revenue for state and local economies. Further, as indicated, taxes do not deter youth e-cigarette use and punish smokers who have used e-cigarettes to quit smoking.

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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 or Tobacco Harm Reduction 101.