A new working paper published by the National Bureau of Economic Research is confirming what many have worried would happen: when you tax e-cigarettes, people go back to smoking.

As Nicole Kaeding at the National Taxpayers Union Foundation writes in her post about the paper, e-cig taxes could dissuade up to 2.75 million adult smokers from quitting. 

Why is that? As Kaeding explains, the reason is that many states aren’t taking into account that e-cigarettes are far safer than cigarettes:

Excise taxes are special taxes assessed on products that pose a risk to others, known as an externality. Creating a special, product-specific tax raises the cost of the product, reducing consumption of the product and the externality. We use excise taxes for any number of items, such as alcohol, gasoline, tanning booths, and yes, cigarettes.

With the launch of e-cigarettes, states have wondered how to tax them. Should the tax rate match that of traditional cigarettes or should the rate be different? Ideally, economic theory tells us the rate should match the risk of the product, since it’s related to the externality caused by the product. So if e-cigarettes are safer than cigarettes, the rate should be lower. Using the study above, economists would say that rate should be up to 95 percent lower than the excise tax imposed on cigarettes.

Not all states have followed that approach. Minnesota was the first state to impose a tax on e-cigarettes, taxing vapor products at 95 percent of their wholesale price. (The tax started at 35 percent.) This natural experiment allowed economists to investigate the impact of high vapor taxes, using other states as controls. The assumption is that if vapor taxes are set too high it would discourage individuals from quitting smoking. Many smokers should want to switch to vapor products to reduce their health risk, but there is a financial calculation too. If the vapor product is too expensive, they would be unable or unwilling to make the switch. Put another way, setting the rate too high could increase the adult smoking rate.

Unfortunately for the state of Minnesota, they set their tax rate far too high.

According to the authors, “we find consistent and robust evidence that the e-cig tax in MN increased adult smoking relative to what it would have been in absence of the tax.” Their estimates are that “32,400 additional adult smokers would have quit smoking in Minnesota in the absence of the tax.”

The authors went a step further. They estimate that a new national vapor tax would deter 1.8 million smokers from quitting. If Congress went a step further and adopted a proposal that taxed vapor the same as cigarettes, 2.75 million smokers would be deterred from quitting smoking. Sadly, many in Congress have endorsed such a policy. In October, the House Ways and Means approved a bill that would have created a new federal vapor tax equaling the current tobacco tax rate.

Naturally, this doesn’t matter to people who don’t know that vaping is 95 percent less harmful than cigarettes. It also doesn’t matter to those who don’t know that those who use vaping to quit traditional cigarettes are twice as likely to continue to abstain as those who use other means (cold turkey, patches, gum).

The truth is, it’s getting much more difficult for folks to vape, which means, sadly, it’s going to get tougher for smokers to quit traditional cigarettes. Between FDA flavor bans, corporate capitulation to government bullies (ahem, Juul), and the constant media misinformation driven by so-called health organizations that profit off cigarette sales (and therefore have an interest in keeping cigarette sales high) smokers’ choices in smoking cessation systems are limited. Meanwhile, cancer-causing cigarettes are sold in every drug store, corner store, bodega, gas station and convenience store nationwide. Makes sense!

The real life stories of how these policy decisions are shaking out are pretty depressing. In 2019, before the flavor bans were announced, I did a podcast with Victoria Vasconcellos, a former smoker who quit using e-cigarettes. Durign the podcast, talked about her own fears of vaping bans and how she worried that she’d have a hard time staying off cigarettes if she was forced to vape tobacco flavor, instead of her favorite mango flavor. To her, the taste of tobacco would be a trigger—making her want to smoke again.

Or consider the story told by Michael Moynihan on the January 3rd episode of the Fifth Column podcast in which he talks about a friend in San Francisco who is having such a hard time finding the mint flavored e-cigarettes he prefers that he went back to smoking (forward to the 38 minute mark). As Moynihan tells it, his friend just didn’t have the time to go hunting around for his favorite flavor.

It’s sad that people, who successfully transitioned to a far safer means of nicotine delivery, are switching back to a deliver system that kills. Where’s the outrage about that?