Gov. Kasich Proposes Steep E-Cigarette Tax Hike

Published April 2, 2015

In addition to several tax hikes on Ohio businesses, Ohio Gov. John Kasich (R) is proposing a massive increase in taxes on electronic cigarettes, to offset government revenue reductions caused by proposed personal and business income tax cuts.

Buckeye Institute for Public Policy Solutions policy analyst Greg Lawson says Kasich’s e-cigarette tax proposal, which would add an excise tax on vaping fluid, based on the equivalent amount of cigarettes contained in the product, unfairly targets a segment of the population for heavier taxation.

“First and foremost, this tax violates the principle of tax equity, because it specifically targets a single type of taxpayer. Additionally, the massive increase for some of the vapor products really could put them out of business, and no tax should be the cause of eliminating a form of business.”

‘Bigger Sticker Shock’

Kasich proposes taxing vaping fluid at a rate of $0.1125 per milliliter of fluid, potentially increasing the price of e-cigarette fluid by a large amount. For example, 15 milliliters of fluid currently costs about $10.73, after sales tax. Kasich’s proposal would add $16.88 to the price of the same amount of fluid, constituting a 168 percent tax hike.

“On a per-cigarette equivalency, the tax should come out about even, which would imply no major substitution effect based solely on price. However, people seeing their e-cigs jacked up 150 percent will probably experience bigger sticker shock, and [that will] lead to some people who may have wanted to shift from tobacco not doing so.”

American Council on Science and Health executive director Gilbert Ross, M.D., says Kasich’s proposal will hurt Ohio taxpayers more than it helps.

“The purpose of this harmful, destructive, and counterproductive proposal is to attempt to extort money from addicted smokers, and those who have quit smoking, by switching to vaping and e-cigs,” he said. “So there’s that. The concept that e-cigs should be taxed at such an exorbitant rate is exactly the wrong reason to do this, from any point of view.”

‘Black Markets Will Thrive’

Ross says the sharp tax increase will discourage some people from trying to quit smoking.

“Switching to e-cigs will be reduced by this ridiculous tax, bringing great harm to Ohio’s smokers who want to quit,” he said. “They will keep on smoking, and over half of them will die prematurely from it.”

Other vapers will buy e-cigarette fluid through other means, reducing the state’s revenue from the new tax and hurting small businesses.

“Many vapers will find ways and means to get their e-cigs and nicotine e-liquid without paying this doleful tax,” Ross said. “Out-of-state and internet retailers and black markets will thrive, and will seek no identification to check age, nor will they pay taxes.” 

Declining Source of Revenue
“Small businesses in Ohio now thriving from the innovative, disruptive e-cig breakthrough will flee the state to more consumer- and business-friendly regions,” he said.

Lawson says offsetting long-term income tax cuts with declining revenue from sin taxes on e-cigarettes is not a good idea. 

“If these tax increases lead to some level of product cessation, as well as the likely increase in the untaxed black market, we will see a declining revenue stream,” he said. “If that happens, and given some of the challenges we see in general restraint of government spending, it is hard to see how other tax reforms would be sustainable, if predicated on such a declining source of alternative revenue.”

Matt Hurley ([email protected]) writes from Cincinnati, Ohio.

Internet Info:

“Electronic Cigarettes (E-Cigarettes) as Potential Tobacco Harm Reduction Products: Results of an Online Survey of E-Cigarette Users,” Paul Bergen, et al.,