The authors examined the effects of Minnesota’s 95 percent wholesale vapor tax, which is one of the largest excise vapor taxes in the country. The authors observed the changes in Minnesota’s excise tax from 35 percent in 2010, which was then increased to the aforementioned 95 percent wholesale tax in 2013. The authors note that the excise tax increase transpired at a “particularly vulnerable time and probably had a greater impact than a similar tax imposed on a mature product,” given that e-cigarettes were still relatively new in 2013.
The authors sought to understand the impact of the large excise tax on Minnesota adult smokers and compare the results other groups of states. The authors used data form the Current Population Survey Tobacco Use Supplements from 1992 to 2015.
The authors found that in 2014, there were around 600,000 adult smokers in Minnesota and the study found that the excise tax on vapor products “deterred about 32,4000 adult smokers from quitting” in the Gopher State. The authors extrapolated the Minnesota data to estimate the effects of a national excise tax of a similar rate, finding such a tax “would have deterred around 1.83 million smokers from quitting.” The authors also examined the effects of e-cigarettes and vapor products being taxed at the same rate of combustible cigarettes. A national tax would increase the price of vapor products “by approximately 62 percent, increase smoking participation by 8.1 percent, and deter approximately 2.75 million smokers from quitting.”
The authors conclude that their findings provide “consistent and robust evidence” that Minnesota’s excise tax on e-cigarettes and vapor products “increased adult smoking relative to what it would have been in the absence of [the] tax.”
As of June 2020, 21 states had state-wide excise taxes on vapor products, and many more local and state lawmakers have introduced and/or are planning introducing sin taxes on e-cigarettes and vaping devices. Excise taxes are often used to deter adults from certain behaviors. As a tobacco harm reduction tool, lawmakers should refrain from taxing products that are significantly less harmful than combustible cigarettes. Indeed, replacing e-cigarettes for combustible cigarettes should be encouraged and should not be subjected to draconian taxation.
E-cigarettes use a battery powered heater to turn a liquid containing nicotine into a vapor. The vapor is inhaled by the user and is generally considered to be less harmful than the smoke from combustible cigarettes because the vapor does not contain the toxins that are found in tobacco smoke. Because e-cigarettes provide an experience that is very similar to smoking, they may be effective in helping smokers to quit, and thus the availability of e-cigarettes could increase quit rates. Alternatively, e-cigarettes may provide smokers with a method of bypassing smoking restrictions and prolong the smoking habit. There is very little causal evidence to date on how e-cigarette use impacts smoking cessation among adults. Although there is no federal tax on e-cigarettes, a few states have recently imposed heavy taxes on them. We provide some of the first evidence on how e-cigarette taxes impact adult smokers, exploiting the large tax increase in Minnesota. That state was the first to impose a tax on e-cigarettes by extending the definition of tobacco products to include e-cigarettes. This tax, which is 95% of the wholesale price, provides a plausibly exogenous deterrent to e-cigarette use. We utilize data from the Current Population Survey Tobacco Use Supplements from 1992 to 2015, in conjunction with a synthetic control difference-in-differences approach. We assess how this large tax increase impacted smoking cessation among adult smokers. Estimates suggest that the e-cigarette tax increased adult smoking and reduced smoking cessation in Minnesota, relative to the control group, and imply a cross elasticity of current smoking participation with respect to e-cigarette prices of 0.13. Our results suggest that in the sample period about 32,400 additional adult smokers would have quit smoking in Minnesota in the absence of the tax. If this tax were imposed on a national level about 1.8 million smokers would be deterred from quitting in a ten-year period. The taxation of e-cigarettes at the same rate as cigarettes could deter more than 2.75 million smokers nationally from quitting in the same period. The public health benefits of not taxing e-cigarettes, however, must be weighed against effects of this decision on efforts to reduce vaping by youth.Read Report