Vape Taxes Increase Cigarette Usage. That Would Be Devastating for Kentucky.
State legislators have finalized the 2020 revenue package and have included provisions that will increase taxes on vapor and e-cigarette products. While the measures in the revenue bill are an improvement over HB 32, which also raised taxes on other tobacco products including premium cigars and included a constitutionally questionable retroactive floor tax, the provisions in the revenue package are still problematic.
The bill ultimately divides vape products into two categories - “closed vapor cartridges” and “open vaping systems.” Closed vapor cartridges like JUUL and similar products are typically sold at convenience stores and gas stations, while the open vaping systems use refillable liquids found at vape shops. The legislature imposed a 15% wholesale tax on the open vaping systems and a $1.50 per cartridge tax on the closed cartridges.
One JUUL pod has roughly the same amount of nicotine as a pack of cigarettes; notably this means that a closed vapor cartridge is now taxed $.40 more per cartridge than a pack of cigarettes.
These increased taxes will likely result in more adults switching back to traditional cigarettes. A large percentage of e-cigarette and vape customers are former cigarette smokers, and research has shown that high taxes on vape products can reverse that switch.
A 2019 study found that a tax increase on vape products in Minnesota led to an increase in the number of adults smoking traditional cigarettes. Researchers estimated that 32,400 fewer people quit smoking cigarettes in the state after the tax increase. A 2020 study co-authored by University of Kentucky Economics Professor Charles Courtemanche found that "a policy that raises the price of e-cigarettes would increase smoking of regular cigarettes," and that "consumers buy an additional 6.2 packs of regular cigarettes for every standard e-cigarette pod they stop purchasing due to higher taxes." The 2020 study, funded by the National Institutes of Health, found that for every 10 percent increase in e-cigarette prices, e-cigarette sales drop 26 percent while traditional cigarette sales jump by 11 percent.
These trends matter because of the incredible cost associated with cigarette smoking attributable illnesses and Medicaid expenditures in Kentucky. In 2017, University of Louisville Professor Medicine Brad Rodu published A Tobacco Tax Proposal for Kentucky and found that the costs to the taxpayer from high smoking rates are astronomical. In 2016, 50% of Medicaid recipients were current smokers. Of the $9.66 billion spent on Medicaid in Kentucky in 2016, $1.47 billion was directly attributable to smoking.
The research on this issue is clear. Higher vape taxes push adults back to traditional cigarettes. Especially in a state where nearly a quarter of the population smokes, it is more imperative than most other states that we encourage adults to switch from cigarettes to an alternative that is 95% healthier, and vaping has been shown to be more effective than all other products at reducing smoking.
We will be watching to see how this tax plays out this year, but if the Kentucky's experience is anything like those of other states, we can expect to see more Kentuckians buying cigarettes.