Research & Commentary: Vermont’s Draconian Tax Will Snuff Out Tobacco Harm Reduction

Published February 5, 2019

Vermont Lawmakers are hoping to generate revenue from electronic cigarettes and vaping devices through a proposal in the General Assembly that would apply the state’s “92% wholesale price tax on other tobacco products to electronic cigarettes and their paraphernalia.”

The tax would apply to all electronic cigarette products, including devices and e-liquids that do not contain nicotine. According to the bill’s fiscal analysis, the legislation would generate $1.1 million in revenue in fiscal year 2022. All revenue generated is to be deposited into the State General Fund.

Such legislation threatens the health gains that e-cigarettes and vaping devices provide as tobacco harm reduction (THR) tools. Research increasingly indicates that it is the smoke in combustible cigarettes that cause the most harms. E-cigarettes are a THR product that effectively delivers nicotine without the associated harm produced in cigarette smoke.

In 2018, the National Academies of Sciences, Engineering, and Medicine found switching from combustible tobacco cigarettes to e-cigarettes “results in reduced short-term adverse health outcomes in several organ systems.” The same year, the American Cancer Society acknowledged “the exclusive use of e-cigarettes is preferable to continuing to smoke combustible cigarettes.”

This is consistent with earlier findings. For instance, in 2016, the Royal College of Physicians found e-cigarette use “unlikely to exceed 5% of the harm from smoking tobacco,” concluding that it is “in the interest of public health … to promote the use of e-cigarettes.”

Moreover, electronic cigarettes can positively impact state budgets by reducing health care costs. An analysis by State Budget Solutions profiled the impact of THR products on Medicaid costs. The authors estimated states could have saved $48 million in Medicaid spending if all Medicaid recipients who smoked switched to e-cigarettes.

A Policy Study by the R Street Institute analyzed a smaller percentage of Medicaid recipients switching to e-cigarettes. Using a sample size of one percent of Medicaid recipients permanently switching, the authors estimated Medicaid savings to “be approximately $2.8 billion per 1 percent of enrollees” over the next 25 years.

The proposed legislation in Vermont points to a 40 percent wholesale tax that was imposed on vaping products in the Commonwealth of Pennsylvania in 2016. Although the Pennsylvania Department of Revenue was able to account for the increased revenues the tax brought to the Commonwealth, it failed to acknowledge the negative economic consequences of such an extreme tax.

By 2017, Pennsylvania’s 40 percent wholesale tax “resulted in the closure of more than 100 small businesses and the loss of several hundred jobs” in the Commonwealth. …. Research indicates that these businesses “generate an annual non-online sales of more than $300,000 per store,” a monthly average of about $26,000. The following year, after Pennsylvania passed its draconian vaping tax, legislation was introduced in an attempt to address the negative externalities with a bill that would “narrow the class of products taxed and lower the amount of tax.”

Lawmakers interested in protecting public health in Vermont should adjust how they currently use tobacco funds. In 2018, “Vermont received $106.1 million (estimated) in tobacco settlement payments and taxes.” In the same year, the state spent $3.6 million, three percent of tobacco funding received and “42.4 percent of the Centers for Diseases Control and Prevention’s annual spending target,” on tobacco control efforts including education and cessation.

Draconian taxes on THR products are a disservice to public health and threaten the entire electronic cigarette industry. Vermont lawmakers should refrain from taxing and regulating THR products in a similar fashion to combustible cigarettes and rather promote their use as cessation devices. Research increasingly finds these products are less harmful than combustible cigarettes and their use can actually save states money by reducing health care costs.

The following documents provide more information about tobacco harm reduction and electronic cigarettes.

Vaping, E-Cigarettes, and Public Policy Toward Alternatives to Smoking
For decades, lawmakers and regulators have used taxes, bans, and burdensome regulations as part of their attempt to reduce the negative health effects of smoking. Recently, some have sought to extend those policies to electronic cigarettes. This booklet from The Heartland Institute urges policymakers to re-think that tax-and-regulate strategy. Policymakers should be mindful of the extensive research that supports tobacco harm reduction and understand bans, excessive regulations, and high taxes on e-cigarettes often encourage smokers to continue using more-harmful traditional cigarette products.

Podcast Series: Voices of Vapers
In this weekly podcast series, State Government Relations Manager Lindsey Stroud talks with researchers, advocates, and policymakers about tobacco harm reduction and electronic cigarettes. The series provides important information about the thousands of entrepreneurs who have started small businesses thanks to THRs and the millions of adults that have used electronic cigarettes and vaping devices to quit smoking tobacco cigarettes.

Research & Commentary: Study Reports Health Benefits from E-cigarette Use
In June 2016, the British Medical Journal published a study that examined electronic cigarette use after 24 months. Finding a 40 percent disparity between smokers who used e-cigarettes to quit smoking and smokers who did not use e-cigarettes, the authors found, “[E]-cigarette use alone might support tobacco quitters remaining abstinent from smoking.” In this Research & Commentary, State Government Relations Manager Lindsey Stroud argues the growing body of evidence suggests the Food and Drug Administration may have been too hasty in its May 2016 decision to regulate e-cigarettes as tobacco products.

E-Cigarettes Poised to Save Medicaid Billions
In a new report from State Budget Solutions, J. Scott Moody finds e-cigarette use could create significant savings for state governments, especially in their Medicaid programs: “As shown in this study, the potential savings to Medicaid significantly exceeds [sic] the state revenue raised from the cigarette excise tax and tobacco settlement payments by 87%. As such, the rational policy decision is to adopt a non-interventionist stance toward the evolution and adoption of the e-cig until hard evidence proves otherwise.”

Research & Commentary: Vaping Taxes and Bans Hurt Smokers Trying to Quit–commentary-vaping-taxes-and-bans-hurt-smokers-trying-to-quit
In this Research & Commentary, Heartland Institute Senior Policy Analyst Matthew Glans and State Government Relations Manager Lindsey Stroud examine vaping bans and taxes and consider how such measures block or limit what is for many smokers an effective method for halting the use of tobacco cigarettes.

Research & Commentary: Public Health Officials Urge Use of Electronic Nicotine Delivery Systems
In this Research & Commentary, Heartland Institute State Government Relations Manager Lindsey Stroud notes the importance of NHS Health Scotland’s joint statement encouraging the use of electronic nicotine delivery systems (ENDS) as an alternative to tobacco products. NHS Health Scotland, Public Health England, and other groups have found ENDS are 95 percent less harmful than tobacco cigarettes.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, our Consumer Freedom Lounge, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus, host an event in your state, or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Lennie Jarratt a state government relations manager at The Heartland Institute at [email protected] or 312/377-4000.