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California Wants To Increase Vaping Taxes, But Experts Say There Could Be Unintended Consequences

Andrew Nixon
Capital Public Radio

California Gov. Gavin Newsom has a new idea for addressing the youth vaping epidemic: a nicotine tax on electronic cigarettes.

The governor, like many state and federal health officials, is concerned about therising number of teens inhaling nicotine through products from Juul Labs Inc. — a company that makes a type of e-cigarette shaped like a USB flash drive. 

The Juul has a small “pod” that clicks into the top, filled with ane-liquid (nicotine plus flavoring and other ingredients) which heats up and creates vapor. The larger pod that Juul sells contains about 40 milligrams of nicotine. 

Newsom is proposing a $2 tax for every 40 milligrams of nicotine in an e-cigarette. The tax would begin Jan. 2021, and would add to the state’s tobacco product tax, which already applies to the device.

Could price increases stop kids from vaping?

Health advocates say a tax has the potential to deter kids from vaping. Cigarette salesdropped when California raised the tobacco tax in 2017. 

“Taxation is traditionally a tactic that we’ve used to combat youth use of tobacco products, and it’s been effective,” said Lindsey Freitas, advocacy director with theCampaign for Tobacco Free Kids. “Youth are a lot more price-sensitive to those products.”

The proposed nicotine-based e-cigarette tax would generate an estimated $32 million in its first year. The money would fund administration, enforcement, youth prevention, and heath care workforce programs, according to the budget summary. California is one of ninestates that taxes vapor products as of Jan. 1, 2019. 

Tony Abboud, executive director of an industry group called the Vapor Technology Association, said this tax shouldn’t be higher than taxes on other age-restricted products such as tobacco, alcohol and cannabis.

“Given the enormous costs on California’s health care system caused by smoking, no sound tax policy should encourage smoking and, at the same time discourage vaping,” he said. “We stand ready to work with the Governor and interested stakeholders on thoughtful and effective laws and regulations that restrict youth access and do not unfairly advantage combustible cigarettes.”

Fears higher vaping taxes lead adults back to smoking

Some adults use e-cigarettes as a tool for smoking cessation. Vaping doesn’t produce carcinogenic tar the way combustible cigarettes do, but health groups warn that the ingredients in vapor can also be harmful.

“We find that a lot of [adults] think they’re going to use e-cigarettes to quit smoking, then they end up doing both,” said Wendy Max, a professor of health economics at UC San Francisco. “Taxes can steer people from one product to another. If you make one product more expensive, maybe they go back to cigarettes.”

That’s what researchers found to be happening in Minnesota in 2013, when that state raised its e-cigarette tax to 95% of the wholesale acquisition cost, nearly doubling the cost the retailer pays to the manufacturer. The retailer then decides how much of the tax to pass on to the customer.

2019 working paper from the National Bureau of Economic Research, a private nonprofit research organization, used data from 1992 to 2015 to compare smoking habits between Minnesota and other states without an e-cigarette tax. Researchers found that an estimated 32,400 additional adult smokers would have quit smoking in Minnesota if not for the tax. When e-cigarettes became more expensive, this group chose to stick to traditional smoking rather than transition to a vape as a cessation tool. 

“On the one hand, it might be the case that if you tax the e-cigarettes, kids are less likely to use them,” said Michael Grossman, a professor at City University of New York and an author on the paper. “But on the other hand, adult smokers are going to be less likely to stop smoking based on our evidence. If you really want to target the behavior of kids, there are other ways to do it.”

Other approaches to keep kids from vaping

A coalition of California lawmakers and health groups are backing SB 793, which would ban the sale of all flavored tobacco products in California, including menthol cigarettes. The Campaign for Tobacco Free Kids is part of that coalition.

The state proposal is stricter than the flavor ban announced by the Trump administration last year. Gov. Newsom stated in his budget that the administration will support the statewide flavor ban. 

Wendy Max, the health economist from UCSF, said a flavor ban may be a more direct way to address youth vaping than a tax, which could be difficult to implement because manufacturers may be able to modify nicotine potency without actually changing the amount of nicotine on the label

She also pointed out that kids are not always the purchasers of e-cigarettes. 

“In general, I think taxes are a great way to go, but vaping is very, very complicated,” Max said. “Kids are going to respond to taxes, because kids don’t have a lot of money. But the nature of the product is such that kids share them, they get them from other kids. There are ways they get around the tax burden.”

The tax proposal in the budget includes $9.9 million for administering the proposed tax. There’s an additional $7 million for the California Highway Patrol and Department of Justice to form a task force dedicated to combating the underground vaping product market.