E-Cigarette Taxes, Other Sin Taxes More About Benjamins than Health Benefits

Published September 18, 2015

With the stated purpose of improving public health by making politically unpopular behaviors more expensive, Chicago City alderman Proco Moreno (D-Ward 1) is proposing to add $1.25 to the price of e-cigarette cartridges and $0.25 per milliliter of e-cigarette liquid.

Moreno’s proposal is projected to bring in less than $1 million in revenue, filling about 0.001┬ápercent of the city’s $69 billion debt hole. The politician’s urge to use excise taxes to solve deeper financial problems mostly represents an unwillingness to tackle problems in a meaningful way.

Decades of fiscal and political mismanagement in the Windy City have resulted in a precipitous decline in the tax base as residents and businesses have moved out of town like refugees escaping a sinking ship. Now, in the name of “public health,” lawmakers propose to tax and discourage something that actually helps people improve their health.

Studying how e-cigarettes affect smokers’ efforts to quit smoking, University College London health psychology professors Susan Michie and Robert West surveyed nearly 6,000 former and current smokers in the UK, asking what methods they used to try to kick the habit.

People employing e-cigarettes as a cessation tool, the researchers found, were about 1.5 times more likely to quit smoking than people using over-the-counter nicotine replacement therapies such as nicotine patches, or by going “cold turkey.”

If lawmakers sincerely meant to promote public health and help people quit using tobacco, they would not propose increasing the cost of things that help people quit tobacco. Lawmakers’ proposals to increase e-cigarette taxes suggest their intentions are not helping people, but helping themselves to people’s money, especially that of lower-income individuals, for whom “sin” product spending constitutes a higher percentage of personal income.

In a 2013 paper, University of Wisconsin-La Crosse assistant professor of economics Adam Hoffer joined Utah State University professors William Shughart II and Michael Thomas to examine the rise of sin taxes as government revenue boosters. In the past, the researchers say, lawmakers used excise taxes to offset the economic effects of consumption of various goods. These days, by contrast, excise taxes are viewed as a cheap and easy way to pad government budgets.

“[S]ince demand is inelastic and the quantity of cigarettes sold therefore falls by a smaller percentage than the tax-ridden increase in price, sin taxes may be a relatively efficient means of raising revenue,” they write. “Thus, incentives to raise more revenue to plug holes in the public budget frequently work at cross-purposes with the aim of reducing smoking, leading to significant public choice problems.”

In the current case, with e-cigarette users being a small minority of the population at large, there is little political downside for lawmakers levying more taxes on them, even if doing so achieves the opposite of stated public-health goals.

“Selective taxation of specific goods, owing to the supposed negative externalities their consumption generates, is an old but fatally flawed ‘theory’ of public finance,” the researchers write. “The flaw is the idea that the consumers of some private goods should be taxed to provide benefits for the public at large.”

According to Milton Friedman, one of the most influential economists of our time, “one of the great mistakes is to judge policies and programs by their intentions rather than their results.”

Making e-cigarettes and products that can help improve public health more expensive, in the name of improving public health, is simply irrational and greedy, benefiting no one except the lawmaker whose out-of-control spending must be funded out of the pockets of consumers and taxpayers.