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Experts: Proposed e-cigarette tax could drive teens to more harmful products

FILE - In this Aug. 28, 2019, file photo, a man exhales while smoking an e-cigarette in Portland, Maine. (AP Photo/Robert F. Bukaty, File)
FILE - In this Aug. 28, 2019, file photo, a man exhales while smoking an e-cigarette in Portland, Maine. (AP Photo/Robert F. Bukaty, File)
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Democrats seeking revenue to fund President Joe Biden’s $3.5 trillion domestic agenda are eying new taxes on tobacco and nicotine products, including what would be the first federal tax on e-cigarettes, but some experts fear increasing the cost of vaping could have dire unintended consequences.

The proposed tax was tucked into a plan introduced by Democrats on the House Ways and Means Committee earlier this week to raise over $2 trillion in new federal revenue to offset Biden’s “Build Back Better” agenda. Although more than 20 states currently tax vaping products, the federal government does not.

According to the Tax Foundation, the Ways and Means proposal would double the federal excise tax on cigarettes and impose comparable taxes on other tobacco products based on their type, weight, and nicotine content. The result for some e-cigarette products could be a slightly higher federal tax than combustible cigarettes.

“The legislative intent of achieving parity across a wide product portfolio containing non-combustible and non-tobacco products would hurt consumer access to harm-reducing products,” warned Ulrik Boesen, a Tax Foundation expert on excise taxes.

The tax would be levied on manufacturers, but most of the cost would presumably be passed on to consumers. Despite several failed attempts by lawmakers, this would be the first federal tobacco tax increase since 2009, and Democrats estimate it would bring in nearly $100 billion in revenue over a decade.

Matthew Myers, president of the Campaign for Tobacco-Free Kids, called the proposal a “win-win solution” for public health and fiscal policy. He also applauded the introduction of a federal tax on e-cigarettes as a “key element” in reducing youth vaping.

“A federal tax on e-cigarettes is a necessary response to high rates of youth use. E-cigarettes, which are currently not taxed at the federal level, have become by far the most popular tobacco product among youth, rising to what the surgeon general and the FDA have called epidemic levels,” Myers said in a statement.

Experts agree the 20% of high schoolers who reported using e-cigarettes in the 2020 National Youth Tobacco Survey represent a severe public health crisis. However, many health economists are unconvinced raising the cost of vaping will solve that problem, and some research suggests teens might turn to more dangerous products instead.

“There is preliminary evidence that the imposition of e-cigarette taxes not only encourages youth not to use them but encourages them to begin to use combustible cigarettes,” said Michael Grossman, director of the New York office of the National Bureau of Economic Research.

A recent study funded by the National Institutes of Health estimated doubling the rate of taxes on e-cigarettes to place them more in line with levies on traditional cigarettes would result in a 12% drop in youth e-cigarette use, as well as an 8% increase in youth use of traditional tobacco products.

Michael Pesko, a co-author of that study and an associate professor of economics at Georgia State University, said the economic rationale for taxing e-cigarettes comparably to other tobacco products is not clear. Research has indicated vaping products are less harmful than cigarettes, and he argued tax levels should reflect the relative risks.

“We estimate that the federal bill as currently written would cause two in three teens that no longer use e-cigarettes due to the e-cigarette tax to smoke cigarettes instead, which would paradoxically increase tobacco-related harm over not having changed the tax rates at all,” Pesko said.

A study published in the American Journal of Public Health in August advised policymakers to balance the health benefits of transitioning adult smokers to e-cigarettes with the potential harm of youths beginning to vape. The report recommended a “modest tax” on e-cigarettes combined with a much higher tax on combustible cigarettes that would make switching attractive to current smokers but discourage teens from using either.

“If they are targeting tobacco, it would make more sense to target the most harmful forms of it – cigarettes – with large taxes, rather than e-cigarettes and other smokeless products,” Pesko said.

A 2019 National Bureau of Economic Research working paper co-written by Grossman concluded a substantial e-cigarette tax imposed in Minnesota in 2010 might have discouraged tens of thousands of adults from quitting combustible cigarettes because the cost of switching to vaping was too high. The authors calculated taxing e-cigarettes at the same rate as traditional cigarettes nationwide could deter 2.75 million people from quitting smoking, but they acknowledged a potential upside in reducing youth vaping.

“Youths who begin to use e-cigarettes may transition into the use of cigarettes or to dual use,” Grossman said. “Even if neither transition occurs, there is evidence that nicotine exposure can lead to neurological damage that has negative consequences for cognitive development in youths.”

Beyond the potential public health implications, some critics warned imposing a hefty federal tax on e-cigarettes would also be steeply regressive. In a July Gallup survey, 10% of U.S. adults with household incomes under $40,000 a year said they had vaped in the previous week, compared to just 3% of those earning more than $100,000.

“It is going to be borne by those folks at the bottom end of the income scale,” Rep. Drew Ferguson, R-Ga., said at a House Ways and Means Committee meeting Wednesday as he unsuccessfully offered an amendment to exempt those earning less than $400,000 a year from the tax.

The White House maintained Wednesday that an increased tobacco excise tax would not violate President Biden’s pledge not to increase taxes on the middle class because it is not technically a tax on income. However, press secretary Jen Psaki also declined to explicitly endorse the proposal.

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“It’s not an idea the president has proposed, and it’s just one that’s been proposed, among many, from members of Congress,” Psaki said.

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