The Negative Economic Impacts of the New Nicotine Tax Imposed Only on Vapor Products In the Reconciliation Bill (HR 5376)

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Vapor Technology Association > Blog > The Negative Economic Impacts of the New Nicotine Tax Imposed Only on Vapor Products In the Reconciliation Bill (HR 5376)

Executive Summary

Background

·       The vapor product industry is an important part of the US economy.  About $8.1 billion in vapor sales lead to 133,600 jobs and $22.1 billion in economic activity.

·       About 35,000 of these jobs are held by people working for the over 9,850 independent adult-only, retail vape shops located across the country.  Even so, the number of independent adult-only, vape shops has fallen by 27 percent since 2018 as a result of new state and federal taxes and regulations.

·       Congress is currently deciding whether to impose a new tax only on vapor products of 2.78-cents per milligram of nicotine, believing that such a tax would “equalize” or create “parity” with cigarette taxes.

Conclusions

·       Our analysis finds that the bill would not create anything close to parity with cigarette taxes but, rather, would tax vapor products at a much higher rate – up to nine times higher – than the tax on a pack of cigarettes.

·       Our analysis also finds that, if passed, the proposed nicotine tax in the Reconciliation Bill:

  • Would lead to a net price increase on vapor products at retail of about 53 percent (21.2 percent for a standard two-pack of closed-system pod products and 73.5% for a standard 60 milliliter bottle of open system e-liquid), while the price of cigarettes and other tobacco products would remain unchanged as they would not be subject to any additional federal tax.
  • Would lead to a reduction of nearly 42,800 full-time equivalent jobs and the loss of $2.2 billion in wages and benefits.
  • Would negatively impact the size of the overall economy which would fall by about $7.0 billion.
  • Would result in states and their localities losing $620.1 million in taxes while the federal government attempts to generate revenues.
  • Would lead to a loss of about 31.9 percent of vapor product sales or 3.7 million milliliters of e-liquid consumed.  Of this loss, 61.2 percent would be the result of consumers switching to other tobacco products, including combustible cigarettes.  An additional 18.5 percent of these lost sales would move to the black market.

Read full article here.

VTA – John Dunham & Associates – 2021-12-07.

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