On Sin Taxes And Electronic Cigarettes
A number of states have considered or are considering imposing a sin tax on electronic cigarettes. In some cases, this would tax e-cigs at upwards of 70%. The goal is to discourage use and — in cases where use happens anyway — get a piece of the action. This arguably makes sense for conventional tobacco cigarettes, but does it really make sense for electronic cigarettes?
Advocates of a sin tax often push two major arguments. First, that making something more costly will force individuals to cut back on or quit the product or activity. Second, the tax is argued to make up for future and current costs the activity inflicts on a government or community. In the case of tobacco cigarettes, some states tax them by as much as $4 and $5 per pack. The hope is to reduce smoking and recoup inevitable future health costs the state will incur taking care of individuals that have smoked themselves into hospitalization.
A sin tax levied against electronic cigarettes ignores two very important things. First, sin taxes are widely disliked and considered a poor tactic for government intervention in the activities of individuals. Second, discouraging electronic cigarette use is more likely to send users back to smoking rather than forcing them to quit altogether.
On the first point, sin taxes are often considered bad policy regardless of the product or activity being taxed. In many cases, a sin tax fails to influence the fundamental consumer behavior being taxed and instead encourages use of the lowest quality, highest concentration version of a products. In the worst case, use of smuggled or black market goods could become rampant. This is particularly the case when neighboring communities exhibit large discrepancies in final market prices.
Sin taxes also raise some fundamental arguments that are seemingly endless. Some feel it shouldn’t be the government’s place to regulate through taxes something that is otherwise an individual’s choice — especially with seemingly unproven social consequences. On average, the life of a healthy individual costs the government more than the life of a smoker, obese individual or alcoholic (who all have statistically shorter lives). Under the second argument for a sin tax (recouping medical costs), cigarettes, sugary sodas, greasy cheeseburgers, and alcohol shouldn’t be taxed at all. Maybe vegetables, yoga classes, and doctor’s visits need a longevity tax instead. But I digress.
On the second point, electronic cigarettes are hardly a sin to tax. Although the research shows that electronic cigarettes do cause some harm, that harm pales in comparison to the harm caused by smoking. Some researchers believe that a lifetime of electronic cigarette use is less harmful that 2 months of smoking. A great many individuals that use electronic cigarettes firmly believe that in the absence of the devices, they would return to smoking. Many individuals that used electronic cigarettes to transition away from smoking an ultimately quit believe they couldn’t have done so any other way.
In short, a tax discouraging use of electronic cigarettes would be an entirely inappropriate use of the idea of sin tax. It would more likely keep smokers smoking than keep new users from taking up the habit of e-cig use. States are being woefully misinformed of the effects electronic cigarettes are having on the market. Anti-smoking individuals still refuse to see anything resembling a cigarette as a promising new alternative. According to a recent report from Morgan Stanley, tobacco cigarette sales declined 4.5% from that which was expected in early 2013. They credited one major change with the bulk of this decline — the massive growth of the electronic cigarette industry.
After all the efforts by anti-smoking groups, the FDA, and various individuals to stop electronic cigarettes, this industry still put a serious dent in the world of smoking. Just imagine what this industry could do with the support these groups were they to get over the emotional response they have to smoking itself.