What Makes Tax Differences Between Vapes and Cigarettes

Over the past decade, vaping has rapidly grown in popularity around the world. Sales of electronic cigarettes and vaping devices have steadily risen as many cigarette smokers switch to what is often perceived as a less harmful alternative. In the U.S. alone, 4.5% of adults are estimated to regularly use vaping products(2021). With this growth has come increasing public debate around how vaping should be regulated and taxed compared to traditional tobacco cigarettes. This article aims to examine the key factors that have contributed to very different tax approaches between these two nicotine delivery methods

1. Historical Context
Unlike vaping, the taxation of traditional cigarettes and tobacco products has a very long history. As far back as the 17th century, forms of tobacco taxation existed in some American colonies. Over time, taxation was seen as an effective way to raise revenue for governments, while also discouraging tobacco use due to rising prices. In more recent decades, cigarettes have been hit with substantial 'sin taxes' - excise taxes levied on products deemed harmful, such as alcohol and tobacco. Over $27.2 billion is collected from tobacco settlement payments and tobacco taxes (2022). These taxes can add an average of $2-$3 or more to the price per pack of cigarettes.

Compared to traditional tobacco, vaping is a relative newcomer to the nicotine market. The first modern electronic cigarettes only emerged in 2003 and didn't gain wider popularity until years later. This means vaping has largely avoided the decades-long accumulation of tobacco taxes that dramatically raised cigarette prices. Currently, there is no federal excise tax on vaping products, while only a minority of states levy specialty vape taxes. However, the FDA has regulatory authority over vapes and there are growing calls from health advocates to tax vaping similar to cigarettes. But for now, the tax obligations between smoking and vaping remain distinctly different.

2. Health Considerations
A key factor in the debate around vaping taxes is uncertainty about the long-term health impacts of e-cigarettes. While vaping is often viewed as less risky than smoking, the products have not been around long enough for comprehensive research on long-term effects. Public health groups caution that vapes still contain nicotine and other chemicals that may pose risks. There's particular concern around teen vaping. However, vaping advocates argue e-cigarettes show promise for harm reduction among adult smokers looking to quit cigarettes. More definitive research is still needed to better understand the full health implications. These uncertainties shape the ongoing debates around appropriate tax policy.

The Well-Established Risks of Smoking
In contrast, the severe health risks of smoking traditional cigarettes are conclusively proven. Tobacco smoking greatly raises risks of lung cancer, heart disease, stroke, and chronic lung disease, among other conditions. Approximately 480,000 Americans die annually from cigarette smoking and exposure to secondhand smoke. Given these known risks, high taxes have been implemented on traditional cigarettes as a public health measure.

The Uncertain Long-Term Impacts of Vaping
Vaping products have simply not been around long enough for sufficient research on the long-term health effects. E-cig vapor contains fewer chemicals than cigarette smoke, but vaping still exposes users to substances like nicotine and heavy metals known to be hazardous in high concentrations. There are also concerns that flavorings and other vape ingredients may pose unknown health risks when inhaled. More longitudinal studies are needed to better understand the long-term impacts.

3. Public Policy Goals
Another key factor is how tobacco tax policies aim to advance various public health goals. On one hand, high tobacco taxes are intended to discourage cigarette uptake and reduce smoking rates via cost. However, some policymakers argue excessively taxing vapes undermines their potential for harm reduction if switching from smoking. There are also considerations around consumer freedom and impacts on businesses. Striking the right balance with the vape tax policy remains a challenge.

Deterring Smoking and Promoting Public Health
A major impetus for high cigarette taxes has been deterring smoking and decreasing tobacco consumption, especially among price-sensitive youth. If vaping taxes reached an equivalent level, vaping could become less affordable and potentially dissuade some users. However, there are concerns this could diminish vaping's viability as a smoking cessation tool. It illustrates the difficulty of aligning taxes with public health objectives.

Generating Revenue Through 'Sin' Taxes
In addition to altering behavior, another goal of tobacco taxes is simply to raise government revenue by taxing 'sins' like cigarettes. Some jurisdictions facing declining cigarette sales have contemplated imposing vape taxes to make up for lost revenue. But there are questions around whether revenue generation should guide policy on products affecting public health. It highlights the conflicting considerations involved in vaping's tax treatment.

4. Social Implications
There are also concerns around how tobacco taxes disproportionately impact lower-income groups, who tend to have higher smoking rates and are more deterred by price hikes. Some argue that excessive vaping taxes could make switching from smoking cost-prohibitive for these disadvantaged populations. There are also social justice arguments that sin taxes infringe on individual freedoms. But those advocating higher cigarette and vape taxes point to the enormous public health costs of smoking that ultimately burden society.

Regressive Tax Impact on Lower Incomes
Unlike income taxes, tobacco taxes generally take a larger portion of income from poorer versus wealthier consumers. This means tax hikes hit disadvantaged groups hardest and could make quitting cigarettes difficult if vaping becomes less affordable. Some propose offsetting these impacts with targeted smoking cessation assistance for low-income communities. But the regressive nature of tobacco taxes remains an important policy consideration.

The Role of Education in Informed Consumer Choices
There are also arguments around how appropriate education and public awareness can help consumers make informed choices aligned with public health goals, potentially reducing the need for discouraging taxes. While this knowledge can empower populations to make healthier decisions, education alone cannot address all the societal variables involved, so sensible regulations and taxes will remain important as well.

5. Regulatory Challenges
The diverse and rapidly changing nature of the vaping industry also poses regulatory challenges when crafting tax policy. There is a vast array of different vaping devices on the market, from disposable e-cigs to high-powered mods, using various chemical formulations. This variability and quick pace of evolution make it difficult to implement taxes like traditional tobacco approaches. Policymakers are still grappling with how to regulate and tax such a fledgling and heterogeneous industry. Some jurisdictions have opted for sales taxes on vaping products as an interim measure while long-term frameworks develop. But comprehensive and nimble regulations are still a work in progress.

6. Future Considerations
As research on vaping's long-term impacts continues to emerge, there is the potential for greater harmonization between taxes on e-cigarettes and traditional cigarettes. If conclusive evidence shows vaping poses comparable health risks to smoking, similar tax levels could be justified on both products as hazardous. This may occur if newer generation vaping products deliver much higher nicotine levels than early models. However, if evidence continues showing substantially lower risks from vaping, distinct tax treatments for the two categories would remain reasonable. The future direction of taxes will follow the science.

Navigate Vaping Tax Complexities with Ongoing Analysis
As research on vaping and its health effects progresses, there's a chance we might see changes in how vaping products are taxed compared to traditional cigarettes. However, for now, the differences in tax policies reflect the fact that vaping is relatively new in the nicotine market, compared to cigarettes that have been around for much longer. It's important to keep analyzing new evidence to make sure tax policies for these products are fair and effective.