The state of Illinois is hoping to make up for declining cigarette tax revenues by hitting vaping products with a confiscatory wholesale tax on vape products. This is the first effort by the state to tax e-cigarettes but continues Illinois’s recent tradition of regressive taxes that harm marginalized populations.
No tax is more regressive than a flat tax on a good or service that costs the same no matter your income level. If you are vaper, chances are your e-juice consumption is roughly the same no matter your income level. No matter what your view on taxation and the role of government, it is difficult to ignore how taxes like Illinois's proposed e-cig taxes place a greater burden on those with less disposable income.
With e-cigarettes, the situation is far worse than your average "sin tax". Unlike a tax on liquor, gambling or cigarettes, you have a tax that is creating a financial barrier that could conceivably deter adult smokers from switching to vaping, and even drive vapers to smoke again.
Illinois's Tradition of Regressive Taxes
In 2017, working families were hit with a universally reviled soda tax that was collected at the point of sale, putting onus on small businesses. This tax failed to account for ice in fountain drinks and hit discount shoppers who bought 2 liter bottles and fast food customers purchasing large fountain drinks the hardest.
Interestingly, this sugary soda tax also included caffeine free diet sodas with no sugar but mysteriously left off soft drinks like LaCroix. It was surely a coincidence that sparkling water costs far more per ounce than soda and has a more affluent customer base. This must have been an oversight and not lawmakers writing the rules to reflect their own prejudices, rather than sound science.
Looking to refill their coffers but remove the hurdles of a point of sale tax, they are targeting e-cigarettes by going after wholesalers and retailers who purchase their products from wholesalers.
36 Percent Tax on E-Cigarettes
The 36 percent tax on wholesale e-cigarette products will certainly harm small businesses. This is a massive tax hike that will drive vape shops out of business, and force them to increase their prices. The jobs lost and added financial burden would net a mere $10 million. This is a rounding error when compared the $133 billion pension shortfall and tremendous debt faced by the state.
Pritzker Family to Benefit From E-Cig Tax?
It should be noted that the fabulously wealthy Pritzker family has invested heavily in pot related ventures and PAX labs, which developed into Juul. The giant of the vaping market, their position would be improved with mom and pop vape shops being driven out of business.
Juul has been under siege in recent months, and there are rumblings of a ban on vape pods. Businesses selling refillable pods, box mods and cig-a-likes would stand to benefit enormously if that occurred. But how many vape shops have the financial wherewithal to endure a 36 percent tax spike and not pass on the cost to their customers?
How many current smokers looking to transition to e-cigarettes will be deterred by the added expense of this tax? The potential health consequences are very real.
Governor Pritzker’s Plan
The State Journal Register reports that Governor Pritzker plans on increasing several “sin taxes” in order to balance his $39 billion spending plan. He also wants to raise the state tax on cigarettes to 32 cents per pack, on top of an existing $2.30 cent per pack tax, which would net an additional $55 million.
Illinois’s fiscal year 2020 budget reveals that a major hole in their regressive sin tax revenue scheme needs plugging. Balancing budget on the backs of smokers alone is not possible. The state anticipates cigarette tax receipts will decline 2.5 percent per year, and for cigarette tax receipts to drop $25 million between 2018 and 2019.
Their solution appears is to take a slice of vaping revenue. The state will initially profit from fewer smokers switching to vaping, or from vapers transitioning back to cigarettes because of the tax hike.
Looking at long term actuarial planning, an area where the State of Illinois has a woeful track record, the added healthcare expenses incurred by promoting smoking over vaping will take huge bite out of the e-cig tax receipts.
Smokers have long traveled to neighboring Indiana to avoid the Illinois cigarette tax. Wisconsin has a similar cigarette tax to Illinois and is not a destination for smokers, but they do not currently have a statewide e-cig tax. Expect an exodus of e-cigarette customers to both states from the Chicaho area.
The thriving e-commerce market for vaping supplies will also make it easier to avoid the Illinois e-cig tax. If Illinois vapers are able to evade this tax, it will be of little solace to the businesses who will hemorrhage customers and revenue as a result.
Smoke Free Alternatives Coalition of Illinois
The Smoke Free Alternatives Coalition of Illinois described the e-cigarette tax as a blow to public health. According to Coalition President Victoria Vasconcellos:
“The governor’s proposed tax would do nothing more than create another hurdle for adults who are trying to quit smoking. Studies have shown vaping products are among the most useful tools to help adult smokers quit traditional cigarettes. With vaping products proven to be 95 percent less harmful than traditional cigarettes, it seems unethical to tax a person for making better, healthier choices.”Victoria Vasconcellos, Smoke Free Alternatives Coalition of Illinois
Vaping an Easier Target than Alcohol
Vaping is an easy target because smokers and ex-smokers who vape are not heavily represented in upper income brackets. Drinking rates are highest among educated, high income adults. This is why alcohol, a health scourge in every sense of the word, avoids the level of scrutiny that e-cigarettes and the teen vaping epidemic receive.
Far more high school students binge drink than use e-cigarettes on a daily basis. Alcohol kills 5,000 teens annually, but is popular among individuals with access to the levers of government.
Limiting Access to E-Cigarettes Harms Marginalized Groups
Laws that limit access to e-cigarettes harm marginalized populations. It is interesting that a Governor Pritzker, who received the bulk of his support in the bright blue bastion of the Chicago area, is so quick to punish the marginalized groups that he claimed to champion on the campaign trail.
The CDC’s study, “Cigarette Smoking and Tobacco Use among People of Low Socioeconomic Status” starkly outlines the disproportionate impact that smoking has on the less affluent. Adults with less than a high school education succeed in quitting cigarettes only 43.5 percent of the time versus 73.9 percent for college graduates.
Adults earning more than twice the poverty line are only half as likely to smoke as adults living below the poverty line. A gold standard study in the New England Journal of Medicine (NEJM) demonstrates how e-cigarettes could shatter this paradigm. In this study, vaping crushed nicotine replacement as a smoking cessation tool.
Vaping and the African American Community
There is already evidence that e-cigarettes are freeing smokers from the ash and smoke of cigarettes in the African American community. Ironically, the data proving this point can be found in a survey negative disposed to vaping.
A study by the International Journal of Environmental Research and Public Health found African Americans are more likely to embrace e-cigarettes alone, rather than engaging in dual use and continuing to smoke cigarettes, than any other group.
As mentioned above, this study took the antiquated view that e-cigarettes provide no benefit and portrayed this new embrace of vaping as a problem rather than a sign of progress. This puritanical approach works great if your goal is to judge the decisions of others, but is less effective at reducing harm.
Historically, the African American smokers attempt to quit more frequently but with less success than their White and Hispanic counterparts. The emergence of an option, that according to the NEJM study is nearly twice as effective, is proving to be a game changer.
It makes no sense to saddle an emerging cigarette alternative with taxes that will drive users back into the clutches of “Big Tobacco”. It also makes no sense to lump vaping and smoking together. Most vapers use e-juices with nicotine. But the existence of competing nicotine products that are free from ash and smoke does not benefit the tobacco industry, which has seen smoking rates plummet to all-time lows.
Rural America and Vaping
Illinois is an interesting case study. Apart from the Chicago area, the bulk of state is rural. Governor Pritzker did not get much support in downstate Illinois, but he is still the governor of both the red and blue areas. If he needs a primer on how restricting e-cigarettes harms rural residents, he can review Iowa Attorney General Thomas Miller’s letter to the FDA.
This letter outlined how denying access to e-cigarettes harms the health of rural residents looking for cigarette alternatives. Rural areas suffer much higher rates of lung cancer and have fewer cigarette alternatives available.
LGBTQ Community and Vaping
In a CDC study, census identified members of the LBGT community were three times more likely to use electronic cigarettes: 7.5 percent versus 2.6 percent. This was the highest rate for any group surveyed. They also found that 20.3 percent of adults that identify as lesbian, gay or bisexual smoke, versus an overall rate of 14 percent. Bisexual women are over twice as likely to smoke as heterosexual women.
Smoking rates among the transgendered have been estimated at over 80 percent and studies have tied this to structural discrimination. As a whole, the smoking rate in the LGBT community kills over 30,000 annually and leads significant health disparities.
In practice, sin taxes attempt to balance the budget on the backs of marginalized groups who engage in activities deemed harmful. But in the case of e-cigarettes, the sin is seeking an alternative to combustible cigarettes.
The UK Embraces E-Cigarettes
The puritanical view on total nicotine abstinence being the only desirable outcome the exact opposite of the approach taken by UK’s National Health Service. They promote vaping as being 95 percent safer than smoking.
As a single payer system, they have plenty of skin in the game. If vaping did not work it would be jettisoned, in the same way that they cut off homeopathy, herbal and natural medicine in recent years. The NHS has stated that the UK’s greater success at reducing smoking rates than the rest of the EU can be directly tied to their humane and open minded policies on vaping.