The Truth About Trump's $100 Million User Fee on E-Cigarettes

Proposed White House Budget Targets Vaping Industry

Although it is an executive branch prerogative to submit a federal budget, Trump’s Budget for a Better America is little more than a political document that outlines his priorities. Don’t take this as a partisan cheap shot because it isn't.  A President’s budget being ignored or heavily modified by Congress is hardly a new phenomenon.

This does not mean that the content of his budget doesn’t matter. The targeting of e-cigarettes by a Republican president is an ominous turn of events and suggests that e-cigarettes are now under assault from both the right and left.

The teen vaping epidemic has made e-cigarettes an easy target for politicians of every stripe. You can score points with concerned parents and not worry about much blowback. Smokers and vapers are not heavily represented in middle and upper income brackets, whereas drinking rates are highest among educated, high-income adults.

This explains why there is no call to ban alcohol (again), despite the fact that 13.5 percent of high school students binge drink versus the 2.4 percent who use electronic vapor products daily.

Tackling the Epidemic of Youth E-Cigarette Use

In a section titled “Tackles the Epidemic of Youth E-Cigarette Use”, Trump’s budget proposes assessing the tobacco user fee on e-cigarettes. "The proposal would amend current law to add e-cigarette manufacturers and importers to a list of product categories subject to the user fee."

The tobacco user fee is currently collected on 5 classes of tobacco: cigarettes, roll-your-own tobacco, snuff, chewing tobacco, cigars and pipe tobacco. User fees are paid by the manufacturer, but this cost is passed on to consumers.

“This proposal would ensure that FDA has the resources to address today’s alarming rise in youth e-cigarette use as well as new public health threats of tomorrow.”

The budget also proposes increasing the total tobacco user fee by $100 million from its 2019 level of $712 million.  

It has been widely reported that the full $100 million increase would be footed by the vaping industry but the actual verbiage of the document is vague.

Will the Vaping Industry Be On the Hook for $100 Million Annually?

Comparative harm, societal cost and teen vaping issues notwithstanding, it makes no sense for the ecig industry to foot the full $100 million increase, an amount which would represent over 12 percent of the total tobacco user fee collected in 2020 under Trump’s plan. It is more likely the e-cig industry would be required to pay their proportional share of the increased total.

According to Statista, tobacco sales in the US totaled over $100 billion in 2018 and cigarettes made up 84 percent of the total. This is a bit less than the 86.5 percent share of the tobacco user fee that they paid. But excise taxes vary by product and the total paid is anchored on that number.

US e-cigarette sales were estimated at $3.6 billion during the same timeframe. If divided equitably, e-cigarettes would "only" pay around $20 million towards the increased tobacco user fee.

One possible complication is that the user fee is based on federal excise tax receipts. There is no federal excise tax on e-cigarettes.

There have been annual increases to the user fee since Section 919 of the Federal Food, Drug, and Cosmetic Act was drawn up in 2009. Since 2011, the user fee has increased by about 6 percent per year. This steady rate of increase ended in 2019, apparently that was as far ahead as the authors of law were willing to plan. In other words, an increase to the tobacco user fee is not unexpected. The only surprise is the amount of increase that Trump proposed. Nor is it a huge surprise that e-cigarettes would be targeted in a revised version of tobacco user fee. Whether it is fair or not, this change reflects how e-cigs are classified and regulated in the US.

Here is the total tobacco user fee by year since 2009:

Tobacco User Fee

The 2019 tobacco user fee will be $712 million. The dollar amount collected for each of the five classes of tobacco is based on the amount of federal excise taxes collected for each. Cigarettes are by far the most popular of the 5 classes currently covered. If e-cigarettes were added into the mix, they would slot in between cigarettes and cigars at a bit under 3 percent. This would put the vaping industry on the hook for $23 million in 2020. Juul would be responsible for close to 75 percent of the total if reports on vaping industry sales are accurate.

Here is a breakdown of the 2019 tobacco user fee by class:

Vaping was not on the radar when the tobacco user fees act was drawn up a decade ago. The Tobacco Control Act will have to be rewritten if vaping is to be included. Another issue is the division between device manufacturers and e-juice makers. Excise taxes are collected on cigarette paper and tubes, but there is no equivalent to zero nicotine ejuice available in cigarette form.  

Federal Excise Tax

How would the FDA be able to accurately apportion this tobacco user fee on e-cigarettes without a consistent method of calculating revenue? A reworked formula where e-cigarettes are assessed a disproportionately large flat fee of $100 million dollars, a total that was seemingly picked at random, is both unfair and would run afoul of the current tobacco user fee law.

Without an excise tax to measure receipts, it is also unclear how the tobacco user fee would be divided among businesses in each class. The revenue of large publicly traded companies is easily ascertained. The tobacco industry is known as "big tobacco" for a reason but the vaping industry still has thousands of small businesses. With no rough and ready method, such as a formula that draws on federal excise taxes paid, determining who should pay how much will be a challenge. A thorough rewriting of the tobacco control laws would be required.

“The assessment for each class of tobacco products is allocated among the domestic manufacturers and importers in that class, so that each domestic manufacturer’s or importer’s assessment is proportional to its percentage share within that class.” But no matter how you slice it, Juul would be responsible for the bulk of the e-cigarette user fee.

New Controls Placed on Vaping Industry

Trump’s budget also grants the FDA greater authority to collect fees to enhance their regulatory oversight of tobacco and nicotine products. Could an excise tax also be in the future? At this time, eight states and the District of Colombia levy a statewide excise taxes on vaping products.

According to the Tax Policy Center, the federal excise tax on cigarettes, which is $1.0066 per pack, raked in a total of $13.8 billion dollars in 2017. Unlike other excise taxes collected by the IRS, the federal tobacco tax is collected by the Alcohol and Tobacco Tax Trade Bureau of the US Treasury Department. Would this distinction make a new tax on e-cigarettes less of an anathema to congressional Republicans?

Concerns over tariffs on Chinese goods have already buffeted the vaping industry. Shenzen, China is the manufacturing hub for most vaping devices and there are concerns that a trade war could harm e-cigarette sales.

Teen Vaping Epidemic

Teen vaping poses an existential threat to the e-cig industry. FDA commissioner Scott Gottlieb’s legacy will be his war on e-cigarettes and efforts to end this troubling trend. After submitting new FDA regulations on e-cigs last fall, he has continued to hammer Juul and Altria for double dealing.

Vapor4Life has no interest in selling to minors. We card everyone who enters our Northbrook vape shop and use industry leading age-verification software. The freedom of every ADULT vaper to enjoy the flavors and devices of their choice will be endangered until this issue is under control.

Marlboro maker Altria is in favor of a flavor ban, although they are in a win-win situation. If e-cig access is curtailed, their core business is cigarettes. If e-juice flavors are banned, the advantage they gained through buying 35 percent of Juul is locked in.

Iowa Attorney General Thomas Miller attacked the new FDA e-cig regulations because adult smokers are denied cigarette alternatives due what may prove to be a short term trend. But at least Gottlieb acknowledged the dangers of this trade-off. Most anti-vaping politicians see no nuance and are quite willing to funnel vapers back to combustible cigarettes. Whether they are being intentionally obtuse or intellectually lazy, they seem willing to use every debunked zombie vaping myth that has ever been devised as a talking point.

What this Means

What the White House document signals is that the embattled vaping industry is under assault from both major political parties. To date, the strictest bans on e-cigarettes have been proposed in bright blue bastions. New York has a proposed flavor ban, and e-cig prohibition in California has been submitted by state lawmakers.

Diane DeGette (D-Colorado), author of a national e-juice flavor ban known as the SAFE Kids Act, may represent “purple” Colorado but the 1st Congressional District is anchored on urban and suburban Denver. It was last represented by a Republican in 1973.

DeGette has missed the boat on several counts with her flavor ban. Her first error is failing to realize to realize that fruit flavors exist because they are preferred by adult vapers. Period. Full stop.

She cannot wrap her head around the fact that retro e-juice packaging is marketed to adults. The fact she chose Tutti Frutti as an egregious example of predatory marketing to children isn’t entirely surprising. When she was a kid, Tutti Frutti was still much more than a 1950s novelty song.

I would hate to be the one who breaks the news to her, but a song that was fading in popularity before Kennedy took the oath of office does not resonate with today's teenagers.

In the interest of fairness, it must be pointed out that the sugar-coated cereal themed e-juices appeal to a younger generation. That generation is Generation X, although older millennials also lived through the heyday of questionable ultra-sweet breakfast cereals.

Despite DeGette’s reputation as a champion of the LGBTQ community, she is blissfully ignorant of the reality that strict e-cig laws harm marginalized populations. The LGBT community has a higher rate of smoking than any other census reported group according to the CDC. As a result, they also have the greatest need for smoking alternatives. There is a glimmer of hope. They also have the highest rate of vaping. This is no surprise. E-cigarettes demolished nicotine replacement as a smoking cessation tool in a study published in the New England Journal of Medicine.