Balancing Act: E-cigs Tax vs. Increased Tobacco Use
(stock image courtesy: Pixabay/Lindsay Fox)
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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowRaising taxes on e-cigarettes to cut vaping may have the unintended consequence of boosting sales of traditional cigarettes, according to a new study conducted by researchers at six universities, including Ball State.
The team analyzed scanner data from 35,000 retailers nationally during an eight-year period. The study found for every 10% increase in e-cigarette prices, e-cig sales dropped 26%.
“If the story ended there, then I think we would all say that cigarette taxes would be a good thing. But the story doesn’t end there,” explained Erik Nesson, an economics professor at Ball State.
The study found when there’s a 10% increase in e-cigarette prices, traditional cigarette sales jumped by about 10% as well.
“It is a balancing act. Unfortunately, often when you change the prices of one good, consumers respond by searching around for other goods that they may be able to place of the original,” Nesson said.
Twenty states currently have an e-cigarette tax, which significantly raised the price of e-cigarettes. The Indiana state legislature has discussed whether to boost taxes on sales of e-cigarettes to cut their usage, but the measure has not made it out of committee.
“Making policies are really hard, and really hard to do it right,” said Nesson. “I try to put the numbers out there and then let the policymakers make whatever choices they think are best.”
Additionally, Congress is considering enacting a federal tax on e-cigarettes. In late October 2019, the U.S. House Ways and Means Committee approved an e-cigarette tax with bipartisan support that set a national e-cigarette tax proportional to the Federal cigarette tax.
The prospect of a national tax concerns the research team.
“We estimate that for every 1 e-cigarette pod no longer purchased as a result of an e-cigarette tax, 6.2 extra packs of cigarettes are purchased instead,” said Michael Pesko, an economist from Georgia State University. “The public health impact of e-cigarette taxes, in this case, is likely negative.”
The Centers for Disease Control and Prevention found that nearly 3% of adults in the United States used e-cigarettes in 2017. Use of e-cigarettes among adolescents has grown even more rapidly, with approximately 27% of high school students nationwide using e-cigarettes in 2019.
The Indiana State Department of Health says there have been six deaths in the state due to vaping. ISDH says there are 60 cases of severe lung injuries related to vaping, and another 68 are likely related to e-cigarette use.
The research was funded by a grant from the National Institutes of Health.
In an interview with Inside INdiana Business, Ball State economics professor Erik Nesson explains the source of the study’s raw data.