In a new study from the National Bureau of Economic Research, a team of economists has indicated that taxing E-cigarettes could mean that people return to traditional smoking.
Lawmakers have, for many years, loosed at increasing taxes on anything they deem to be harmful, usually things like alcohol and tobacco. So-called 'sin- taxes’ are said to help reduce the type of behavior that is seen as harmful.
However, the study "The Effects of E-Cigarette Taxes on E-Cigarette Prices and Consumption: Evidence from Retail Panel Data," asks what happens when one 'bad' form of behavior simply leads to another because of the negative impact of taxation.
The study suggests that by trying to dissuade consumers from purchasing E-cigarettes by increasing the tax, they could be driving them straight back onto tobacco.
In economic terms, to use a sin tax to reduce unwanted behavior an assessment must be done to look at exactly how high the tax must be for a product or activity to becoming off-putting.
An example of this was the tax on soda where it was found that a small tax would not tackle the obesity that soda contributes to, therefore it was determined that to put people off buying sodas the tax would have to be in the region of 18 cents in the dollar.
The same approach was used when looking a dissuading people from using E-cigarettes and taxes were put in place within 8 States and 2 large counties. The taxes affected the price of the E-cigarette, their sale and the sales of traditional tobacco products.
The study took place between 2011-2017 and looked at data from around 35,000 retailers. It found that as taxes on E-cigarettes rose, sales would drop: If the price rose by 10%, the sales of the product would fall by 26%. However, at the same time, they saw an increase in the sale of traditional cigarettes by 11%.
That said, E-cigarettes are not a standard product. You can purchase disposable cigarettes, starter kits, refill tanks, liquids and so on. The ingredients are also different, for example, the amount of liquid and nicotine used in different types of products can vary.
Sometimes the taxes are levied according to the amount of nicotine present; others are tax based on the value. This makes it hard to compare the electronic with the traditional cigarette which is always taxed in terms of the cost per cigarette.
This led to some very complex mathematical calculations but the conclusion was that levying taxes on E-cigarettes will also impact the use of traditional cigarettes and vice versa.
At present around 50% of the fifty US states have taxed E-cigarettes, leading to a hike in prices. Congress is now looking at setting up a federal tax on E-cigarettes which, according to the study, could be a negative move.
It is shown, for example, that 6.2 packs of traditional cigarettes are sold for every E-cigarette that is not purchased because of the price increase caused by the tax.
In 2017 the CDC (Center for Disease Control and Prevention) identified that around 3% of adult Americans used E-cigarettes in 2017 with their use increasing most rapidly among high school students. In 2019 a study indicated that around 27.5% of this demographic used E-cigarettes or other vaping products.
The CDC acknowledged the health concerns of vaping, however, it points out that even as the number of people who smoke tobacco falls, around 480,000 US Citizens will continue to die as a result of cigarette smoking each year.
Several studies support the idea that the E-cigarette is a healthier choice and contain fewer toxic ingredients than their traditional counterparts.
This leaves an interesting question: Do we put a sin tax on E-cigarettes? If the CDC has established that smoking is one of the major causes of preventable death and the use of E-cigarettes can encourage people not to smoke it seems counter-intuitive to tax them.
On the other hand, the long term effects of vaping are still largely unknown. Until more evidence exists it seems that lawmakers will continue to struggle with this dilemma.