Over the past seven years, electronic cigarettes have boomed into unexpected levels of success in the United States. With an industry now estimated at $1 billion per year, it only makes sense that money-hungry lawmakers are fixing their attention on ecigs as a potential new way to bring in some extra tax revenue. Already, North Carolina and Minnesota have implemented ecig taxes and now it appears that Arizona might be the third state to try this new strategy.
Arizona is already in a financial bind with a $1 billion deficit and no easy solution on the horizon. The Joint Legislative Budget Committee recently did a thorough analysis to determine how they could offset that deficit and one of their major suggestions was to implement a new tax on electronic cigarettes. If Arizona taxed ecigs at a similar rate of their current tobacco tax (around $2 per pack), then the state could bring in an extra $6 million annually. While this money would definitely be helpful, it is far from a complete solution to their massive deficit.
Dennis Hoffman, economist and director at the L. William Seidman Research Institute at Arizona Sate University, said an ecig tax is really not the total solution they need. “Certainly taxing e-cigarettes isn’t going to put much of a dent in that particular challenge,” he explained.
While 15 additional states have debated taxing ecigs, the revenue is still minimal compared to some alarming deficits in state budgets. However, JLBC analysts believe ecigs still offer some promising revenue for the future. “The growth in the use of electronic cigarettes has generated questions to the JLBC Staff about the potential for new revenue collections. In response, we have developed a fiscal impact of e-cigarette taxation,” analysts wrote in the JLBC Monthly Fiscal Highlights report last month.
Critics argue that taxing ecigs isn’t the answer. David Brunori, deputy publisher at the nonprofit Tax Analyst publication and research professor at George Washington University said, “Taxing e-cigarettes is a money grab. If people use e-cigarettes instead of real cigarettes, the state loses money.”
But Hoffman countered that ecigs should be taxed because they are similar to tobacco products. When people switch from smoking to vaping, the states lose money and a new tax would offset those losses. “If the products are really quite similar and they attract the same types of consumers, it would be logical to say ‘level the playing field’.”
Do you think it’s fair for states to tax e-cigs or will it just be another way to suppress the ecig industry from further growth?