Taxing the Solution

Vaping products don’t create costs; they make some of the costs of tobacco use disappear.

By George Gay

According to a Vapor Voice news story quoting a CStoreDecisions piece by Isabelle Gustafson, lawmakers have introduced into the U.S. Senate a bill that would establish a federal tax on vaping products and increase the traditional tobacco tax rate for the first time in a decade.

I quote below three of the five-paragraph news story in full because I believe that some of the points made by those supporting the bill need to be challenged, though I acknowledge that such challenge will not affect the final outcome:

The Tobacco Tax Equity Act of 2021 aims to “close tax code loopholes for tobacco products by increasing the federal tax rate on cigarettes, pegging it to inflation to ensure it remains an effective public health tool and setting the federal tax rate for all other tobacco products at this same level.”

“Tobacco-related disease accounts for one out of every five deaths in America, and I know that story firsthand,” Senate Majority Whip Dick Durbin was quoted as saying. “Data shows that the most effective strategy to prevent children from starting this deadly habit is to price it out of their range. This bill would help reduce tobacco and e-cigarette use by ending loopholes that the industry has exploited to target our children. If America can kick its nicotine addiction, it would go a long way to improving our public health for generations to come.”

“Loopholes in our tax code continue to favor big tobacco while the American public, especially our youth, pays the price,” said Representative Raja Krishnamoorthi. “The Tobacco Tax Equity Act increases taxes on cigarettes and finally imposes taxes on the e-cigarettes hooking our children on nicotine, which would generate billions of dollars in federal revenue. As a father of a high schooler and middle schooler, I’m determined to make sure we end the youth nicotine and vaping epidemic.”

I would like firstly to question the term “loopholes,” which is used three times, once in the introduction and once each by the two politicians quoted. The word loophole is used normally to convey the idea that some scam is in operation that allows a disreputable individual, corporation or organization to gain an advantage over others by obeying the letter of a law or rule but not the spirit of that law or rule. And that implied criticism is aimed at one of the usual suspects—big tobacco.

But is this what has been going on here? Has big tobacco been using loopholes in the tax system to target young people? Not from the evidence presented. The politicians quoted seem to be complaining that big tobacco hasn’t been falling in line with tax rules not yet in place, which seems a tad unfair. In other words, the complaints, if any, should be aimed at the politicians for not having brought in these new rules earlier, given that they seem to believe they are so important.

But it is not the way of politicians to blame themselves or even to admit that they have been neglectful of their duties, so the politicians try to clamber onto the word loopholes as if it somehow represents the moral high ground.

And on that somewhat unstable ground, they teeter. Durbin is quoted as implying that one or more people from within his circle of family and/or friends died from a tobacco-related disease. I’m sure that most people would sympathize with Durbin at this point, but the problem here is that he is trying to convince people of the correctness of his position by arguing from the particular to the general.

And the concern must be that despite the fragility of such arguments, other politicians will be won over. It makes you wonder what would happen if a politician called for extra taxes on automobiles because somebody from within her circle had been killed in an automobile wreck.

What I don’t like, also, about Durbin’s position is that it smacks of collective punishment. Tobacco consumption led to the death of somebody from within his circle, so all tobacco users should be punished through the taxation system, even though what they are doing is legal and even though they had no interaction or involvement with the dead person. Such actions are banned even in war.

Then, from the dizzying moral heights of language loopholes and particularities, the announcement moves on to the favorite ploy of all: emotional blackmail. We are told that the new taxes will protect “our children”—or, rather, children (three mentions), youth (two mentions) and schoolers (two mentions).

I wonder how? Perhaps, in the light of not enough attention being paid by politicians to some of the other needs of children, the additional money raised through the new taxes could be used to feed the 18 million children who are projected to face hunger in the U.S. this year. But don’t hold your breath.

Krishnamoorthi is quoted as saying that the Tobacco Tax Equity Act “increases taxes on cigarettes and finally imposes taxes on the e-cigarettes hooking our children on nicotine.” Note the use of “finally” here, which I guess is meant to imply that it has taken a long time to bring the bill forward because of the heroic efforts that politicians have had to put in to overcome the huge barriers standing in the way of tax reform, when, presumably, the reason is that they have not been bothered up to this point.

I would also like to take issue with the idea that Krishnamoorthi trots out about “e-cigarettes hooking our children on nicotine.” Does he know this to be the case, I wonder? Has he proof? It is true that if you look on the website of the National Institute of Drug Abuse, you will see a piece that says, “Consuming nicotine—through regular cigarettes or vaping—leads to the release of the chemical dopamine in the human brain. As with many drugs, dopamine prompts or ‘teaches’ the brain to repeat the same behavior (such as using tobacco) over and over.”

But according to a review by Rivka Galchen (London Review of Books, April 22) of The idea of the Brain, the author, Matthew Cobb, casts doubt on such an idea. “The connection of dopamine to addictive behavior—Cobb cites a Facebook founder saying the site was meant to be addictive, to ‘give you a little dopamine hit’—is ‘nonsense’ and ‘neurobollocks,’” Galchen quotes Cobb as saying. I am not saying that Cobb is correct. I am not in a position to be able to judge such things, but what he has to say must surely give people, even politicians, pause for thought, for he is not alone in thinking this way.

One problem in assessing the rights and wrongs of taxing vaping products in the U.S. arises from the fact that politicians have fallen for the Food and Drug Administration’s descent from science to alchemy in “deeming” these products to be tobacco products. Imagine a U.S. in which bread has not been invented and a significant proportion of the population lives on cake as a staple, with the consequence that these people are wobbly fat.

In trying to improve the situation, the authorities have turned to imposing high taxes on cake, but the sugar content proves to be too appealing, and the people keep buying cake, whether tax-paid or illicit. The authorities then declare war on the cake manufacturers who, after a while, admit that too many wobblies are dying, and come up with bread, with which they claim they can wean at least some of the people off cake.

What do the authorities do? Do they welcome this development? Not if we are talking about the FDA. They say that bread, like cake, contains flour, and, since there are still small amounts of sugar in bread to make it palatable, bread must be deemed to be cake. At which point, the politicians, desperate for funds, realize that bread can be taxed. Alice has gone headfirst through the looking glass.

A couple of other points come out of the announcement of the bill. It is clear that part of the aim of the bill is to force the U.S. “to kick its nicotine habit.” But nicotine and tobacco use are both legal in the U.S., so people have the right to consume tobacco and nicotine products. There is a danger here that politicians are going to muddle up issues of ethics with those of rights.

Just because you object to something on ethical grounds doesn’t bestow on you the right to make it unobtainable for those who don’t go along with your ethical views. In the U.K., we seem to get stuck in the same morass when discussing the issue of assisted dying, and all too few politicians are willing to make the stand that though they might be ethically opposed to assisted dying, they recognize the rights of others to avail themselves of it. As I believe Michel de Montaigne pointed out in the 16th century, “Life is slavery if freedom to die is wanting.”

At the same time, it seems to me that we enter the tobacco and nicotine tax debate too far along the line. We enter it on the assumption that tobacco and nicotine products should be taxed. But why is this so? Well, one idea has it that products should be taxed according to the harm that they cause. This point was made by a couple of speakers who addressed the Western Economic Association International (WEAI) virtual conference during March.

According to a news report, one of them, Woo-Hyung Hong, professor in the Hansung University Department of Economics (South Korea), said that tobacco taxes should be based on a product’s external economic costs. Such a system should consider medical costs, loss-of-labor capital costs, costs from cigarette-related fires and avoidance costs, among others.

There is a certain logic associated with this idea, but if you accept that logic, then surely you have to apply it to everything. Automobiles, for instance. Look at the medical costs that arise from people driving automobiles. There are, of course, the deaths and injuries caused by car wrecks, the deaths and injuries caused by the pollution most automobiles contribute to, pollution that has now been acknowledged to be a bigger killer worldwide than tobacco consumption. And then there is the issue of people becoming wobbly fat because they use their cars rather than walk.

This, in part, is what the U.S. Centers for Disease Control and Prevention has to say on this subject: “Obesity is serious because it is associated with poorer mental health outcomes and reduced quality of life. Obesity is also associated with the leading causes of death in the United States and worldwide, including diabetes, heart disease, stroke and some types of cancer.”

And what about the loss-of-labor costs? Well, for a start, all of the medical problems outlined above are likely to lead to such loss of labor, and just imagine the loss caused by people snarled up in highly polluting traffic jams.

And while most automobiles still run on fossil fuels, there is the billion-dollar cost of subsidizing the oil companies for pumping these fuels out of the ground—fuels, the use of which is causing eye-watering costs associated with climate change and environmental breakdown, costs from which we might never recover.

None of this is to say that tobacco should not be taxed. We are too far down the road to go back now. But all of the revenue from such taxes should be used to relieve some of the causes that encourage people to take up smoking; one of which is clearly poverty since poverty is a good predictor of the likelihood of a person being a smoker. I believe in the idea of redistributive taxes, but the way that tobacco taxation works at the moment is that it is redistributive “upward,” which is obscene.

And finally, there is no reason to tax vaping devices. They don’t create costs; they make some of the costs of tobacco use disappear. They are a solution, not a problem.