Proposed Tax on Tobacco-harm Reduction Products is Flawed Health and Tax Policy

Senator Richard Durbin (D-IL) has introduced some extremely questionable bills during his time in office. From economically flawed price controls on debit interchange fees, to more government rules on Direct-to-Consumer advertising, to stricter antitrust enforcement; there is no shortage of harmful subject matter proposed by the senior senator from Illinois. In fact, just last month he introduced yet another harmful proposal that would greatly increase taxes on consumers - a misguided move to add to the enormous tax burdens already shouldered by the American people.

The legislation is titled the “Tobacco Tax Equity Act of 2021,” and would raise the federal tax on most tobacco and tobacco-harm reduction products to match the tax rate on combustible cigarettes. It’s co-sponsored by Sen. Ron Wyden (D-OR), chair of the powerful Senate Finance Committee, as well as Rep. Raja Krishnamoorthi (D-IL) on the House side of the Congress. As our friends at the R Street Institute pointed out recently, “Since the Tobacco Tax Equity Act of 2021 seeks to equalize taxes on all tobacco products, this legislation risks discouraging people from choosing less harmful products.” They are right on the mark about how this deeply flawed policy proposal will negatively impact those who wish to transition away from cigarettes towards safer alternatives.

The documented decline in smoking is a public health achievement. The percentage of American cigarette smokers has dropped by almost half just in the last twenty-five years, falling from 25 percent of adults down to 13.7 percent, according to the American Lung Association. This, of course, is good news as hundreds of thousands of annual deaths can be attributed to cigarette smoking and millions more Americans also deal with deadly diseases associated with cigarette use. It’s evident in statistics that the decline in smoking cigarettes correlates with a sharp increase in the uptake of vapor and other tobacco-harm reduction products. 

Tobacco-harm reduction products are an effective cigarette cessation tool for smokers who want to quit their habit. In fact, a landmark 2019 New England Journal of Medicine study documents that smoking cessation is two times more likely to occur in those who used e-cigarettes as compared to individuals using other nicotine replacement products. Additionally, there is a consensus in the United Kingdom among academics, scientists, and the medical community that reduced-risk tobacco alternatives such as vaping e-cigarettes are significantly less harmful than smoking combustible cigarettes. According to groundbreaking research by Public Health England and the Royal College of Physicians, vaping is up to 95 percent less harmful than regular combustible tobacco use. Moreover, Public Health England recommends smokers switch to vaping, and the American Cancer Society concludes that, based on current available information, vaping is less harmful than smoking.

While not completely safe, vapor products, which do contain nicotine but not the chemicals and carcinogens found in traditional cigarettes, can be an effective tool for smokers transitioning toward significantly less harmful alternatives.

Given this evidence, there is absolutely no health policy justification to place the same rate of tax as cigarettes on tobacco-harm reduction products. NTU has long been an advocate for excise “sin” tax rates that accurately reflect the product’s level of harm to an individual and society. It is sound tax policy for these tax rates to be reasonable and with purpose, rather than simply used to generate revenue. The science backs up the fact that e-cigarette and vapor products are significantly less harmful than traditional cigarettes, therefore it makes little sense to have an equal tax rate for both categories of product.

Aside from ensuring a product’s tax rate is commensurate with its level of individual risk, a poorly thought-out tax increase could have damaging effects on the economy. As American businesses and taxpayers emerge from the health and economic crisis of the last year, it would be extremely unwise to raise taxes. Greater tax burdens, given the fragile state of the economy, will jeopardize the jobs recovery as we dig out of the hole caused by the COVID-19 pandemic. Increased tax rates on job creators, individuals, or consumers are always a precarious endeavor, but one in the midst of an economic recovery could threaten our economic vitality in the years to come. Further, any tax increase on cigarettes, tobacco, or tobacco-harm reduction products would break President Biden’s pledge to not directly raise taxes on Americans earning less than $400,000 annually. 

Ostensibly, tobacco taxes are highly regressive and disproportionately harmful to working-class Americans. Additionally, by raising taxes, policymakers fund a growing black market for cigarettes. Since tax isn’t collected on cigarettes on the black market, all levels of government will lose out on revenue that they would have otherwise collected if the tax rate was lower.

With the prospect of a second partisan reconciliation bill on the horizon, leaders in Congress may be looking to throw in as many tax-and-spend provisions as possible, and it’s certainly feasible that they jam the Tobacco Tax Equity Act through via that legislative vehicle. 

As the Biden administration and Congressional leaders consider an infrastructure bill, it is important that the contents be targeted, necessary, and precise. On the revenue side, it is equally crucial that “pay-fors” come not from blanket tax hikes on corporations, individuals, or consumers, but rather from actual users of such systems. Not only would the Tobacco Tax Equity Act fail to generate a significant source of revenue, it is simply bad tax and health policy. Lawmakers would be wise to keep such an irresponsible bill as far from the president’s desk as possible.