The Tax Foundation posits that with the COVID-19 pandemic decreasing state, local and federal tax revenues in many ways, lawmakers will likely look to easy targets like vaping and other “sin” taxes as a way to make up the shortfall.
And, as the Taxpayers Protection Alliance (TPA) has previous written, that would be a bad idea.
Tax Foundation analyst Ulrik Boesen notes that excise taxes on air travel and hotel rooms have plummeted while gas tax revenues have also dropped precipitously as more people stay home. Meanwhile, more unemployed workers means there are fewer income taxes to collect, and with less money in their pockets, people are spending less, so sales taxes are also down.
Experts deem taxes on products that are generally considered to harm consumers as “sin taxes,” including levies on alcohol, tobacco products and vaping products. Boesen said that these types of taxes are often alluring to legislators because tobacco and alcohol consumption is relatively inelastic, which means people still buy the products in similar numbers as before even as the price goes up due to increased taxes. He also points out that increasing taxes is easier politically – due to much negative sentiment about these types of products – than raising taxes in other areas, such as on property or general sales.
Boesen notes that increases in alcohol taxes could be particularly damaging to bars and restaurants just barely surviving during the pandemic. Although the vast majority have been allowed to reopen, these businesses generally can’t use all of their seating to maintain social distancing among patrons. Plus, many concerned Americans continue to avoid bars and restaurants because health experts consider them to be risky locations for catching the virus.
“Increasing excise taxes on alcohol could be damaging for companies that are already threatened on their margins,” Boesen wrote.
Cigarettes already have high levies, with an average per-pack tax of $1.81 as of this year. But as the taxes have risen the number of smokers has dropped, with just 14 percent of Americans smoking today. Not only does increasing taxes yield more cigarette “smuggling,” as smokes are purchased across state lines, but it also is not a long-term solution to budget issues, Boesen notes.
“Due to their narrow base, they are not a sustainable source of revenue for general spending priorities,” he wrote.
Tobacco taxes fall disproportionately on poorer Americans who often spend more than a quarter of their household budgets to purchase these products. Instead of quitting, households respond by shifting resources away from more important priorities, leading to significant negative outcomes particularly for children. Research has found that tobacco tax increases are particularly ineffective at reducing smoking among low-income families.
Smokers have increasingly turned to reduced-harm products such as vaping and new heat-not-burn tobacco technology as they try to quit traditional cigarettes. But even those products have become a target of legislators. Twenty-three states and Washington, D.C. have enacted taxes and more states are looking to tax vapor products, as well.
TPA Vice President of Policy Ross Marchand has written extensively on the issue of vaping taxes, noting that the science is clear that e-cigarettes “are significantly safer than conventional, combustible cigarettes,” which has led smokers to turn to them as a healthier alternative.
A 2015 Public Health England study found that vaping products are 95 percent safer than cigarettes, while The New England Journal of Medicine found that e-cigarettes are twice as effective as nicotine patches or gum in weaning smokers off of cigarettes.
Marchand said policymakers in the U.S. should tax such harm reduction products “lightly and carefully.”
“There are 24 million Americans who want to kick conventional cigarette smoking to the curb, and elected leaders shouldn’t banish life-saving products through excessive taxation,” he wrote.
The sin is not in the use of the products, it is the government entities raising those taxes.
Johnny Kampis is a senior fellow and investigative reporter for the Taxpayers Protection Alliance.