A Tax Increase on Vape Products Would Be Bad Tax and Bad Health Policy for Kentucky

As both state and federal lawmakers consider increased regulation and taxation of vapor and e-cigarette products, Pegasus Institute has compiled research and data relevant to the discussion. Below, we have a breakdown of some important and often overlooked aspects of vaping policy and taxation.

At the Federal level, HR 2339 passed the U.S. House of Representatives with broad support from Democrats and five yes votes from Republicans. The Trump Administration opposed the measure, and the Republican members of the House Ways and Means Committee tweeted, “If there were an award for ‘legislative false advertising,’ H.R. 2339 would win the prize. Tax hikes are not the answer to reducing teen vaping.” Here in Kentucky, HB 32, a bill to increase the tax on tobacco and vapor products, recently passed the State House.

Kentucky has long had the highest rates of smoking and highest rates of smoking-attributable deaths in the United States. The most recent data shows that Kentucky has about 200,000 adults that use vape products. Only about 15% of these adult users had never used cigarettes before - that means a majority of these Kentuckians are making healthier decisions by switching from cigarettes to vaping.

Increasing taxes on vape products in Kentucky would almost certainly lead to the closures of many vape shops. After Pennsylvania increased taxes on vape products, nearly 25% of vape shops - over 100 in total - closed due to the increase. According to the Department of Labor, the single fastest growing retail market in the United States over the last ten years has been vape shops. Levying higher taxes on this industry could have negative effects on employment, jobs, and economic growth in Kentucky.

Oddly enough, the proponents of a tax increase seem to think that despite pushing this tax to create a "smoke free Kentucky," this tax would also create a sustainable stream of revenue. It appears ironic that those committed to destroying the vaping industry also believe it will provide a consistent revenue. Pegasus Institute has consistently recommended that lawmakers aim for a tax system that relies on a broad base with lower rates that cause the least harm to the economy. 

With the closures of vape shops and increased prices for consumers, we will almost certainly see some adults switch back to more harmful traditional cigarettes. More adults smoking cigarettes will lead to higher healthcare costs, which in turn leads to higher expenses for governments.

In a 2017 Pegasus Institute study, Brad Rodu, a Professor of Medicine at the University of Louisville, found that addressing rising Medicaid costs through harm-reduction policies has been proven to be effective. The study notes that, of the $9.66 billion spent on Medicaid in Kentucky in 2016, $1.47 billion was directly related to smoking. Promoting healthier alternatives to cigarettes is the only way for the Commonwealth to address these costs. More Kentuckians choosing vape products does not just mean longer lives and healthier citizens, it means significant savings to the government on Medicaid expenditures.  

A 2019 study found that after levying a tax increase on vape products in Minnesota, that tax hike 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 featuring 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. Co-author of the study Michael F. Pesko noted that, "The public health impact of e-cigarette taxes in this case is likely negative." 

Advocates of a tax increase consistently point to youth vaping rates as a reason to increase the costs for all consumers. While youth vaping rates may be a concern, pricing is very rarely a contributing factor in youth vape use. A 2016 National Youth Tobacco Survey found that only 3% of youth who had vaped did so because "they cost less than other tobacco products such as cigarettes."

New analysis from New York University shows that "most young people do not vape, and even fewer vape regularly." Their data shows that 86.2% of teens had not vaped in the last 30 days. Researchers found that while youth vaping increased from 2017 to 2018, the increase was "driven by infrequent e-cigarette use rather than regular use." While any youth vaping is problematic, we see similar trends of infrequent use here in Kentucky. The 2019 Kentucky High School Youth Risk Behavior Survey found that 73.9% of Kentucky high school students reported not using a vapor product in the last 30 days. Only 8.7% of high school students reported daily use. 

In fact, a large percentage of youth who have tried vaping say it was largely due to curiosity. Recent polling from the CDC shows the top reason for experimentation with these products is simply curiosity. There is no basis for believing that increased taxes on vape products would curb teen curiosity or usage rates.

Lawmakers should instead look to the relevant research on the harm reduction benefits of switching from combustible cigarettes to vapes and other smokeless products. In 2018, Public Health England, a government entity, produced research showing that vape products are 95% healthier than cigarettes and campaigned to transition adults towards them. Officials in the UK have noted that 1.2 million Brits have quit smoking by using e-cigarettes. 

 The FDA has even admitted that there is "solid scientific evidence that vaping nicotine is much safer than smoking" and that "vaping nicotine is more appealing and more effective at displacing smoking." According to researchers at Georgetown University, "up to 6.6 million cigarette smokers will live substantially longer if cigarette smoking is replaced by vaping over a 10-year period." A 2019 study from the New England Journal of Medicine found e-cigarettes are almost twice as effective as traditional replacement products. 

A recent study from the British Medical Journal, Tobacco Control, found that if smokers switched to vaping it would "lead to 86.7 million fewer years of life lost."

The American Cancer Society, certainly no friend of the tobacco industry, even notes that "research has found that e-cigarette use is likely to be significantly less harmful for adults than smoking regular cigarettes. This is because e-cigarettes do not contain or burn tobacco."

Despite attempts to paint the vaping situation as a crisis, and fears over deaths connected to illicit products, vaping is still the much safer alternative to cigarettes. CDC examinations of the lungs of those hospitalized with the recent "vaping related illnesses" showed that 100 percent of them tested positive for vitamin E acetate, a substance often used in illicit marijuana oils - not in legal vape products. A tax increase on legal products would have no impact on sales of illegal THC cartridges, a product not sold in Kentucky vape shops but rather by black market drug dealers. Unfortunately, this campaign of misinformation has caused more adults to now seeing vaping as "very harmful", despite clear evidence of the contrary. At the same time, both the increase in e-cigarette sales slowed while the decrease in traditional cigarette sales also slowed. 

Opponents of vaping have quite literally had to rely on junk science to promote their efforts. A study from the American Heart Association that attempted to link vaping and heart attacks, was recently redacted because of flawed techniques. The study faced major pushback from the scientific community and was eventually withdrawn - but not before it prompted widespread panic about vaping. 

Attempting to improve long term public health with a tax increase, would almost certainly have the opposite effect. It has long been accepted that high costs, strict regulations, and prohibition force consumers to the black market. In fact, a study by the Tax Foundation that examined tax policy around tobacco products and reduced risk alternatives found that "a heavy handed tax regime undermines public health and encourages dangerous black markets." 

None of this is to say that teens who do not smoke should start vaping, but any attempt to curb teen vape use by ultimately reducing adult access to less harmful products that can prolong their lives would be both misguided public health policy and bad tax policy. 

For more, check out our recent podcast on vaping policy with Paul Blair of Americans for Tax Reform.

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