In the scramble to search for revenue to fund President Joe Biden’s Build Back Better plan, House Budget Chair John Yarmuth (D‑KY) added a nicotine tax to the ever-changing proposal. The proposed tax wouldn’t raise the price of traditional cigarettes, which are already taxed at the federal level, but it would introduce a massive new tax on e-cigarettes and other smoking alternatives, which research shows are dramatically safer options for smokers.
A 6 milligram (nicotine)/30 milliliter bottle of e-liquid, for example, would be taxed at a rate of $5.01 under the proposal. A typical pack of e-liquid pods would be taxed at $4.59. The federal tax on cigarettes is $1.01 per pack. Thus, e-cigarettes would be taxed more than regular cigarettes, and dramatically more so in states that already levy their own high e-cigarette taxes.
Michael Pesko of Georgia State University, one of the country’s leading economists when it comes to analyzing the effect of e-cigarette taxes, estimates the new tax on nicotine alternatives would cause 2.7 million more daily adult smokers, 530,000 more teen smokers, and 29,000 more prenatal smokers.
This is because e-cigarettes are substitutes, not complements to combustible cigarettes, and millions of American ex-smokers have used these products to get off smoking traditional cigarettes.
“I think it makes sense to raise taxes on the most lethal forms of tobacco,” Pesko told Reason Foundation. “Unfortunately, this bill doesn’t do that. Instead, it raises taxes on one of the safer forms of tobacco and so the net public health impact of the tax is likely to be negative by pushing people toward more harmful combustible tobacco use.”
The Cochrane Review, the gold standard of evidence-based medicine, recently concluded e-cigarettes are probably more effective than traditional nicotine replacement therapies in helping smokers quit. “We are moderately confident that nicotine e-cigarettes help more people to stop smoking than nicotine replacement therapy or nicotine-free e-cigarettes,” they found.
From a public health perspective, rather than encourage traditional cigarette smokers to switch to nicotine alternatives that could improve their health, if implemented, this proposed tax seems certain to contribute to a greater incidence of lung diseases going forward.
As well as having a devastating impact on public health, the tax is highly regressive and would violate President Biden’s campaign promise not to raise taxes on people earning less than $400,000 a year. According to a recent Gallup poll, Americans with an annual household income of less than $40,000 are significantly more likely to vape than higher-income groups. Americans without a college degree are twice as likely to vape as college graduates. Those groups would be paying this tax increase.
With more than 15 million adult vapers now in America, many of whom attribute their ability to quit or reduce smoking traditional cigarettes to their use of e-cigarettes, it’s baffling House Democrats would consider targeting this group with a huge tax increase that could push many of them back to smoking and worsen public health.
The proposed tax increase won’t be worth causing 2.75 million more Americans to smoke and won’t generate much of the funding required to pay for the $2 trillion proposal. As the Tax Foundation’s Ulrik Boesen points out, a similar tax proposal from 2019 was estimated to raise less than $10 billion over 10 years. “The nicotine tax proposal in the Build Back Better Act neglects sound excise tax policy design and by doing so risks harming public health. Lawmakers should reconsider this approach to nicotine taxation,” Boesen concluded.
It is very difficult to understand why this proposed nicotine tax was included in the spending plan since it will have such negative consequences for public health, hurt low- and middle-income Americans, and break one of the president’s key campaign promises.
Sen. Joe Manchin (D, WV) opposes the tax and may be enough to ensure that it never becomes law. I second what Sen. Manchin said earlier this week, “A tax on nicotine? That doesn’t make any sense to me whatsoever.”