The Folly of the ‘Build Back Better’ Plan’s Nicotine Tax

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Taxing regular cigarettes and reduced-risk products such as e-cigarettes at the same rate serves neither public health nor the government’s bottom line.

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.

Read full article here.

Mazen Saleh & Pritika C. Kumar – National Review – 2021-11-15.

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