The Folly of the ‘Build Back Better’ Plan’s Nicotine Tax
In a move expected to generate an estimated $96 billion in funding for the president’s Build Back Better Act (BBB) agenda, lawmakers are considering a tax on nicotine that would increase the cost of reduced-risk tobacco products such as e-cigarettes and vaping liquids. This is not a particularly novel idea, and it is also not a particularly good one.
The primary goals of taxing nicotine products are to generate large amounts of revenue and reduce nicotine consumption. But pursuing these two objectives simultaneously puts them inherently at odds with each other. Consumers must purchase nicotine products to generate the desired tax revenue, and by making such products more expensive, the taxes increase the likelihood that consumption will decrease. Ultimately, neither public health nor the state’s coffers benefit.
Of course, it is important to acknowledge that federal tobacco taxes have existed for centuries and modern tobacco taxation has reduced consumption and yielded a net positive effect on American health. Research indicates that a 1 percent increase in the price of tobacco or alcohol in America leads to a 0.5 percent decline in sales. However, these “sin taxes” are dependent on high levels of consumption to generate revenues over the long term. If the goal of increased taxation is to reduce consumption, then lawmakers should expect revenues to decrease as consumption also decreases. And that outcome is the opposite of the stated goal of the nicotine tax in the BBB plan, which is to generate consistent revenue to help offset the costs associated with the plan’s ambitious expansion of the societal safety net.
Meanwhile, the individuals who would be most impacted by all that new safety-net spending are those who historically account for a high proportion of cigarette use. Of the nation’s 34.1 million adult smokers, roughly 7 million have an annual household income under $34,000. These Americans tend to be uninsured or insured through Medicaid. When following the logic of increased taxation on consumption, it might make sense to continue raising the cost of nicotine products to improve health. But the jury is still out.
An Australian study of tobacco taxation’s impacts found different results among different socioeconomic groups. While consumption declined in the short-term, those decreases were not sustained. Research looking at nicotine dependence across the United States, the United Kingdom, Canada, and Australia found that individuals with a lower socioeconomic status were more vulnerable to relapse and required more comprehensive support to help kick the habit. Quitting combustible cigarettes is extremely difficult. Seventy percent of smokers reported wanting to quit in the past year, and 55 percent reported making an attempt to do so — but only 7.5 percent reported that they were able to quit successfully. In other words, the increased prices associated with higher taxation do not appear to completely deter smokers from continuing to smoke.
When considering the tax in the BBB plan, lawmakers would also do well to look to the Food and Drug Administration’s (FDA) recent work on this issue. The FDA has recognized that tobacco products exist on a continuum of risk, with cigarettes naturally being the most harmful to public health and reduced-risk products, also commonly known as “electronic nicotine delivery systems” (ENDS), being the least harmful. To assess the risks associated with these new ENDS products and better help protect the nation’s health, the FDA established rigorous, science-based regulatory processes. The two methods the FDA uses are known as the Premarket Tobacco Product Application (PMTA) and the Modified Risk Tobacco Product (MRTP). Through PMTA and MRTP mechanisms, the FDA scientifically reviews and certifies which products present a reduced risk when compared to combustible cigarettes.
