Paul Blair

Podcast with IWF on Vaping and the Rugulatory Assault its Consumers Face

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Posted by Paul Blair on Monday, June 19th, 2017, 1:28 PM PERMALINK

In a recent podcast with Julie Gunlock of the Independent Women's Forum, Americans for Tax Reform's Paul Blair discussed the politics and policies surrounding the government's regulatory war against vapor products. What exactly is an electronic cigarette and what is vaping? Topics covered include a conversation about tobacco harm reduction and the role that innovation is playing in the tobacco product space that may help smokers transition to less harmful alternatives. 

Learn more about ATR's work in vapor issues at www.stopvapetaxes.org and feel free to sign up for Paul's monthly newsletter Vapor News and Views

Photo Credit: 
Vaping360

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West Virginia Lawmakers Urged to Pass Balanced Budget Without Tax Hikes in Special Session

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Posted by Paul Blair on Friday, June 16th, 2017, 6:35 AM PERMALINK

As a budget shutdown looms in West Virginia, lawmakers in the House and Senate have now both passed balanced budgets that reject the tax hikes called for by Democrat Governor Jim Justice. After vetoing a balanced budget earlier this year, lawmakers were called back into Special Session and asked to raise taxes yet again by a Governor who ran for office - this time with a revitalized call for a transportation bonding, gas tax, and DMV/car tax scheme. 

Both chambers of the legislature, which is under control by Republicans, have passed balanced budgets, however. In response to ongoing budget discussions and the debate over tax reform, ATR President Grover Norquist sent a letter to lawmakers this morning. 

The full letter from Grover can be read here

Dear Members of the West Virginia Legislature,

I write today in support of a FY 2018 budget that relies on spending restraint instead of tax increases to fund the government beginning on July 1.

Despite running for office promising not to raise taxes, Gov. Jim Justice kicked off the 2017 legislative session calling for the largest tax hike in West Virginia history. He has vetoed a balanced budget and called for even more reckless spending while doubling down on his push for tax hikes. We have urged lawmakers to stand strong against Gov. Jim Justice’s call for job-killing tax increases from day one and as a government shutdown looms, we urge lawmakers to remain opposed to out-of-control government growth, spending, and net tax hikes.

For months, the House, Senate, and Governor have debated two distinctly separate issues: how to solve an overspending problem and the identity of West Virginia’s future tax code, an important element of making the Mountain State a more appealing place to raise a family and start a business. After the most recent votes in the House and Senate, both chambers have now passed balanced budgets that reject tax hikes.

The second question before the House and Senate is on the topic of tax reform. Tax reform must not be a Trojan horse for tax increases, as the governor has insisted. But tax reform is a multi-year process. Tax cuts can absolutely be phased in to make the full impact of a tax reform plan revenue neutral for taxpayers at worst. This can be achieved through reasonably conservative revenue triggers or through mandatory reductions over several years. Reducing the impact of the personal income tax should remain a top priority for lawmakers. Taxing earnings discourages savings and reduces a state’s competitiveness.

ATR also urges lawmakers to reject gas tax increases that are not paired with offsetting tax reductions elsewhere. If transportation is truly a legislative priority, it should be funded first with currently collected revenue, not last with bonds, fees, and higher gas taxes on families and commuters. Raising taxes is what lawmakers do instead of reforming government to make it cost less.

Any net tax increase will be scored as a violation of the Taxpayer Protection Pledge, the written commitment many lawmakers have made to West Virginia voters. We will continue to monitor these issues and will be educating taxpayers on the outcome of the budget and tax reform.

For a list of signers of the Taxpayer Protection Pledge in West Virginia, click here

Photo Credit: 
Flickr: Craig Moe

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Rex Alphin Supported Obamacare’s Medicaid Expansion in Virginia

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Posted by Paul Blair on Monday, June 12th, 2017, 12:07 PM PERMALINK

In Virginia's 64th House district, fiscal conservative Emily Brewer is squaring off against serial tax-hiker Rex Alphin.

Alphin has a record, and it's at odds with taxpayers. He has supported a costly expansion of Obamacare's Medicaid program for able-bodied adults, saying it was a "mistake" for Virginia to oppose Governor Terry McAuliffe's plan to expand the Medicaid rolls under Obamacare.

Listen to what Alphin said in a recent radio interview here. 

If Alphin had his way, Virginia taxpayers would have been on the hook for spending billions more on Obamacare to fulfill Terry McAuliffe's most costly campaign promise. If expanded, the additional Medicaid costs would have likely led to massive tax hikes in Virginia, further hurting jobs and economic growth.

Alphin is no stranger to fiscally irresponsible leadership. As chairman of Isle of Wight's Board of Supervisors, Alphin repeatedly voted for higher taxes.

Under his leadership, real estate taxes have gone up over 30% in three years. If that weren't bad enough, Alphin voted to raise the machinery & tools tax by over 500%, a punishing blow to business and jobs in a district where many residents are concerned with jobs leaving for nearby North Carolina.

In fact, his record on fiscal issues is so reckless that 15 leaders of his own party took the nearly unprecedented step of writing an open letter disavowing his candidacy, opining that, “Mr. Alphin has never seen a tax hike he did not like! With his constant tax-hike voting record, he is voting more like a Democrat than a Republican.”

Fortunately, taxpayers have a better choice in the race. Emily Brewer is a fiscal conservative who has signed the Taxpayer Protection Pledge, a written promise to Virginia taxpayers to oppose tax hikes. Unlike Rex Alphin, Brewer opposed Obamacare expansion and has taken a strong stand against tax hikes and big government. 

 

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Democrats Claim Credit for Killing Budget Provision That Would Have Saved Vapor Industry and Consumers

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Posted by Paul Blair on Monday, May 1st, 2017, 8:01 AM PERMALINK

Early Monday morning, the FY17 Omnibus Budget to fund the federal government through October was rolled out by leaders of both parties. Notable among the policies and priorities missing from the agriculture budget was a House Appropriations Committee-passed provision that would have saved tens of thousands of business and millions of U.S. consumers from government overreach. Democrats were quick to take credit in a press release explaining the provisions they ensured were kept out included those that protected small vapor businesses and consumers from crippling regulations imposed last year. 

The May 2016 “Deeming Rule” imposed by the Obama Administration’s Food and Drug Administration (FDA) expanded the list of tobacco products subject to burdensome rules established by the Family Smoking Prevention and Tobacco Control Act to include tobacco-free vapor products and electronic cigarettes.

As we recently explained in a letter to House and Senate leadership:

"The Rule requires new products that did not exist on or before February 15, 2007 – the predicate date – to undergo a burdensome pre-market review process that achieves little in the way of protecting public health at a very high cost. The FDA’s own estimates found that the cost of completing and submitting the required Pre-Market Tobacco Application (PMTA) would exceed $300,000 per product and take at least 500 hours of time per application. At present, the deadline for the submission of PMTAs for each product manufactured in the United States is August 8, 2018...

Estimates from the startup industry suggest 99% of all businesses would be wiped out unless Congress or the Administration rein in the Deeming Rule’s burdensome barriers to approval for new products."

In their FY17 Omnibus Appropriations Act press release, House Democrats claimed credit for ensuring an important provision that would have grandfathered in products currently being used by smokers to quit was not included, noting, “The Omnibus does not include a House provision allowing thousands of unregulated tobacco products to escape full FDA review.”

Setting aside for a moment that the products are not unregulated, the provision referenced is the Cole-Bishop Amendment to the Agriculture Appropriations Bill, bipartisan language that passed the Appropriations Committee by a vote of 31-19 last Spring. Stand-alone legislation, House Resolution 1136, also has the support of both Democrats and Republicans and would modernize the 2007 predicate date to August of 2016, ensuring that products being used by smokers to quit when the regulation took effect will remain available beyond net year.

As we explain:

"The Cole-Bishop Amendment and House Resolution 1136 would not weaken the TCA or the ability of the FDA to impose additional product standards or regulations on new products in the future. That is precisely why the efforts are bipartisan, because there is recognition that while regulations that protect consumers are important, the Rule imposed burdens that neither protect consumers, nor acknowledge that the consequence will be the new industry’s demise."

This minor statutory change would ensure that products known to be at least 95% less harmful than cigarettes were not treated more harshly than their combustible counterparts and made illegal by August of next year. Every cigarette on the market avoided the type of regulatory regime established by Obama’s FDA when the Tobacco Control Act passed in 2009. 

Without immediate action by the Secretary of Health and Human Services or the Food and Drug Administration, tens of thousands of businesses and jobs will be killed by next year. This will limit the availability of reduced risk products to millions of U.S. adult consumers, representing the greatest setback in public health in decades. This isn't the first time that out-of-touch House Democrats have claimed credit for punishing businesses trying to help consumers quit smoking but they should absolutely be ashamed of themselves.

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Coalition Urges Congress to Rein in FDA's Overreach as Part of FY17 Spending Package

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Posted by Paul Blair on Monday, April 24th, 2017, 7:22 PM PERMALINK

Today, in a letter to GOP leadership in the House and Senate, as well as the Appropriations Chairman, Americans for Tax Reform and thirteen other free market groups urged Congress to rein in the Food and Drug Administration's May 2016 "Deeming Rule" as part of the FY17 appropriations package. Without immediate action, rules imposed by President Obama's FDA on an expanded list of "tobacco products" will force thousands of new businesses to close their doors by August of 2018. 

As a result of the Rule, which redefined tobacco products subject to regulations imposed by the Family Smoking Prevention and Tobacco Control Act (TCA), every manufacturer of tobacco-free vapor products - large and small - will have to submit what is called a Pre-Market Tobacco Application (PMTA), retroactive and burdensome pre-approval process designed to prevent new products from hitting the market. This will harm public health, stifle innovation, and kill jobs. 

Below is the letter, which can also be read here. 

We, the undersigned organizations, urge you to provide regulatory relief from the Food and Drug Administration’s May 2016 “Deeming Rule” as part of the final FY17 omnibus appropriations package. Without a modernization of a provision of the Family Smoking Prevention and Tobacco Control Act (TCA), the Deeming Rule will kill tens of thousands of jobs in an industry that is helping many American smokers transition to lower risk alternatives to combustible cigarettes.

Language and legislation sponsored by Congressmen Tom Cole (R-Okla.) and Sanford Bishop (D-Ga.) modernizes the “predicate date” for newly deemed products, providing urgent relief to small businesses from an onerous and retroactive pre-approval process imposed by last year’s Rule. House Resolution 1136 and the Cole-Bishop Amendment to the current FY17 Agriculture Bill would provide additional substantive protections for adult consumers without preventing the FDA from imposing more appropriate regulations for the product category in the future.

Congressional action is necessary to prevent the loss of tens of thousands of jobs created in the last four years. Most of these jobs are the result of domestic manufacturing and new retailers that are providing smokers with potentially effective smoking cessation and/or harm reduction choices that were not available ten years ago. 

The Deeming Rule requires new products that did not exist on or before February 15, 2007 – the predicate date – to undergo a burdensome pre-market review process that achieves little in the way of protecting public health at a very high cost. The FDA’s own estimates found that the cost of completing and submitting the required Pre-Market Tobacco Application (PMTA) would exceed $300,000 per product and take at least 500 hours of time per application. At present, the deadline for the submission of PMTAs for each product manufactured in the United States is August 8, 2018.          

There are tens of thousands of vapor products that would have to be processed by the FDA and the Center for Tobacco Products in the months following August of next year, a nightmare for the agencies and small businesses involved. That is, if businesses could even afford an attempt at compliance. Estimates from the startup industry suggest 99% of all businesses would be wiped out unless Congress moves soon to rein in the Deeming Rule’s burdensome barriers to approval for new products.

This onerous process required of every single vapor product on the market today was one that every single manufacturer of cigarettes in the U.S. avoided when the TCA was signed into law. Even if businesses could afford this investment, however, the process is designed to end in failure. Many small businesses produce hundreds of these products and would be forced to close their doors as a result of this retroactive federal rule.

In his confirmation hearing as FDA Commissioner two weeks ago, Dr. Scott Gottlieb concluded, “There should be reduced harm products available to consumers to transition them off of combustible cigarettes.” Dr. Gottlieb recognizes what numerous international health agencies and bodies have – that vapor products are substantially less harmful than cigarettes and should be embraced by the government as low-risk alternatives for smokers. Without a statutory change to TCA by Congress, however, these tens of thousands of smoking cessation products will be illegal in August of next year.

Time is of the essence for many of these businesses, which cannot afford to wait for an administrative delay in deadlines or delayed Congressional action on the 2016 Deeming Rule. The millions of consumers who currently rely on these products as less harmful alternatives to smoking need your help today.

The Cole-Bishop Amendment and House Resolution 1136 would not weaken the TCA or the ability of the FDA to impose additional product standards or regulations on new products in the future. That is precisely why the efforts are bipartisan, because there is recognition that while regulations that protect consumers are important, the Rule imposed burdens that neither protect consumers, nor acknowledge that the consequence will be the new industry’s demise.

The inclusion of the Cole-Bishop Amendment, as it passed the House Appropriations Committee, will provide significant regulatory certainty to tens of thousands of small businesses in the United States. We encourage Congress to adopt the language into the final FY17 omnibus budget. 

The letter and its signers can be read and found here. 

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West Virginia House Moving Towards Tax Relief in Final Days of Session

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Posted by Paul Blair on Wednesday, April 5th, 2017, 1:26 AM PERMALINK

In recent weeks, several iterations of tax reform have been debated in the West Virginia House and Senate aimed at broadening the base and lowering rates.

This week, the House Finance Committee amended Senate Bill 484, which now accomplishes many of the original stated goals of the House effort on tax reform, an effort that fell short just a week ago – with one major difference. Unlike the House's first stab at this, the new version achieves net tax reductions as a sales tax rate cut is phased in beginning next year. Last week's plan without amendments would have been a $215 million tax increase over 3 years.

The amended Senate Bill 484 bill does raise revenue in year one, to the tune of $137 million generated as a result of expanding the application of the sales tax to telecommunications services, several personal services such as barbering and hair washing, and some forms of contracting services. That base broadening and new revenue, however, is more than offset in future years as a statewide sales tax cut is phased in. These rate cuts are required as a matter of law and should be counted as offsets for the immediate revenue increase. Here’s what the amended SB 484 achieves, according to estimates provided by members of the House Finance Committee and Deputy Revenue Secretary:  

Year                State Sales Tax Change        Revenue Impact

July/Oct’ 17   Base broadening                   $137 million in new revenue

July, ‘18          Rate cut from 6% to 5.5%    $98.5 million tax cut

July, ‘19          From 5.5% to 5.25%             $206 million tax cut

Through 2019, this law would result in a net tax cut of more than $167 million dollars. The sales tax rate reductions in future years are not merely promises; they are requirements if SB 484 passes that would take a new law passed by the House and Senate and signed by the Governor to prevent their implementation. As such, ATR considers the reductions to be adequate offsets for the 2017 revenue hike. Legislators who have signed the Taxpayer Protection Pledge will not be in violation of that written commitment to taxpayers if they vote for SB 484, which moves in the right direction towards tax relief for West Virginia citizens.

The tax cuts don’t stop here, however. If sales tax revenues exceed the 2017 figures after 2019, a revenue trigger would kick in that further reduces the state sales tax in the year following higher tax collections. Here’s how that could look:

Year                State Sales Tax Change                Revenue Impact

July, ‘20          Rate cut from 5.25% to 5%          $258 million tax cut

July, ‘21          Rate cut from 5% to 4.75%          +$250 million tax cut

It’s important to note that these future tax cuts only take effect if future revenue collections exceed current collections (2017), after the phased-in tax cuts. As such, they are responsible caps on future spending should economic growth fuel increased consumption of goods and services in West Virginia.

This amendment was accepted by a 53 to 46 vote on Tuesday night and is up for a full vote in the House today. ATR applauds the work of the House Finance Committee and the effort to reduce the net tax burden on West Virginia taxpayers. ATR will update this post when an official revenue estimate is made available. 

Photo Credit: 
Flickr: Mobili

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ATR Urges HHS Secretary Tom Price to Provide Regulatory Relief to Emerging Vapor Market

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Posted by Paul Blair on Wednesday, March 22nd, 2017, 12:09 PM PERMALINK

In a letter to Health and Human Services Secretary Tom Price, ATR president Grover Norquist today asked for an immediate two-year delay of pending pre-market review requirements imposed by the Food and Drug Administration's May 2016 "Deeming Rule." The Rule applies to vapor products, electronic cigarettes, and premium cigars. Absent immediate action by Congress or the Administration to roll back the FDA's new rules, more than ten thousand new businesses in the United States will be required to comply with an application process so expensive and onerous that over the next two years more than 95% of vapor product manufacturers and retail small businesses will be forced to shut down. 

The C.D.C. estimates that more than 9 million U.S. adult consumers use vapor products, which are at least 95% less harmful than cigarettes, according to the Royal College of Physicians and other leading public health organizations. 

Under the new rules, new smoke-free vapor products will be subject to the regulatory review process established in the 2009-passed Tobacco Control Act. From the letter:

"In 2009 when Congress passed the Family Smoking Prevention and Tobacco Control Act (TCA)... the FDA was granted authority to impose new regulations upon tobacco products such as cigarettes, smokeless and roll-your-own tobacco. A “predicate date” of February 15, 2007 was established whereby products on the market at or before this date were exempt from pre-market FDA review. That look-back period was just over two years when the TCA was signed in 2009. The look-back period for newly deemed products is ten years. 

The FDA’s May 2016 Deeming Rule requires products which did not exist in 2007 – such as vapor products – to undergo the pre-market review process set up in the TCA. The process was designed to make it extraordinarily difficult to introduce new products to market, which is why it was supported by organizations like the Campaign for Tobacco-Free Kids."

There were a number of new requirements established in the FDA's May 2016 Rule. 

"The most significant of the requirements imposed by the FDA’s new Deeming Rule is a requirement that all manufacturers of vapor products submit every product currently available to consumers for pre-market review, a process that every single manufacturer of cigarettes in the United State avoided when the TCA was signed into law. The Pre-Market Tobacco Application (PMTA) requires businesses to spend in excess of $300,000 per product and at least 500 hours of time per application. Even if businesses could afford this investment, the process is designed to end in failure. Many small businesses produce hundreds of these products and would be forced to close their doors as a result." 

ATR is requesting a two-year delay in the PMTA filing deadline for newly deemed products. 

I am asking you to delay the PMTA filing deadline by at least two years as Congress considers an alternative approach to regulating these very low risk products. There are multiple efforts with bipartisan support aimed at addressing the issues I’ve outlined, including the Cole-Bishop Amendment to the FY17 House Agriculture Appropriations Bill and House Resolution 1136, also sponsored by Congressman Tom Cole (R-Okla.). It is paramount that Congress acts this year to modernize the February 2007 predicate date for newly deemed products on the market. 

The FDA is an agency of HHS and its commissioner reports to the Secretary of HHS. 

With the emergence of smoke-free vapor products, millions of U.S. adults have successfully quit smoking traditional cigarettes with a variety of products that did not exist in 2007. ​Imposing this retroactive and onerous set of pre-market review rules upon reduced risk products is illogical and stands to harm decades of efforts to reduce the harm assocaited with cigarette use. The original Act was designed to make it extremely difficult to introduce new tobacco products, and not a single cigarette on the market today was forced to go through this review process. ATR strongly encourages HHS and the FDA to rein in this overreach with immediate action to delay all future filing and application deadlines imposed by the FDA's Deeming Rule. 

The full letter can be read here.

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Democrat Governor Jim Justice Proposes Largest Tax Hike in West Virginia History

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Posted by Paul Blair on Thursday, February 9th, 2017, 12:10 AM PERMALINK

In his State of the State Address Wednesday night, Governor Jim Justice (D-W.V.) proposed the largest tax hike in state history, increasing the sales and gas tax and creating a new Commercial Activities Tax. These proposals stand in stark contrast to his rhetoric on the campaign trail, where he spent nearly all of 2016 promising he would not raise taxes.

To suggest that Justice lied his way into office would be quite the understatement.

The state faces a $500 million overspending problem in the 2018 fiscal year, according to an estimate from the governor’s office. 

His proposal to raise the sales tax from 6 percent to 6.5 percent, when combined with a local average of an additional .2 percent would bring the West Virginia average total local sales tax to the second highest in the region, ahead of Virginia, Maryland, Pennsylvania, and Kentucky. This regressive tax increase would incentivize even more online and cross-border retail sales, a loss for small businesses that rely on competitive tax rates to keep residents in state for retail purchases. 

The proposal also included eliminating the sales tax exemption for advertising and an undisclosed list of sales exemption eliminations for services, a proposal that was defeated 92-2 in 2016 by the House. If passed, this base expansion and sales tax rate hike would constitute more than $180 million in annual tax hikes. 

The governor also proposed a 10 cent per gallon gas tax hike, which would bring the state gas tax burden from 33.2 cents per gallon to 43.2 cents per gallon, making it the second highest taxed in the region, behind only Pennsylvania. On top of the 18.4 cents federal excise tax, the total tax burden for a gallon of gas would rise to an astounding 61.6 cents per gallon. Such an increase would incentivize truckers and travelers to skip over the Mountain State when fueling up, on top of imposing a regressive hike on low and middle-income commuters who live in state.

The final significant tax hike proposed by Justice included the creation of a new gross receipts tax of .2 percent, representing a $214 million annual tax hike. This tax hike imposed on a business regardless of profits represents a massive step backwards in tax policy as it has long been recognized that these taxes are inefficient and cripple growth. That’s precisely why most states have eliminated these taxes, which were more popular a century ago.

One year after neighboring Kentucky imposed gross receipts tax in 2005 it was repealed when lawmakers realized the grave mistake they had made in disadvantaging some companies over others while damaging new businesses and depressing new investment. Is this Gov. Justice’s goal? To replicate the failure of Kentucky’s misguided tax that discouraged investment?  Read more from the Tax Foundation here. 

Additional tax and fee increases include:

  • Increase in DMV license fee from $30 to $50;
  • Increase in beer tax;
  • Increase in wholesale markup on liquor;

 

In total, Justice is proposing $450 million in tax and fee hikes while suggesting a spending cut of merely $26.6 million, which constitutes a rounding error in the context of this massive proposal to increase the burden of government on West Virginia taxpayers. 

Instead of taking a step back towards unworkable tax policies of the Great Depression, the legislature to embrace 21st century tax reform that has inspired growth in states like North Carolina. Broadening the base, lowering corporate, sales, and income tax rates can all be accomplished without imposing unaffordable tax hikes on Mountain State residents. The legislature would be wise to reject all of Jim Justice's tax hikes and take him at his word throughout his 2016 campaign that West Virginians "are hurting enough. We don't need to increase taxes."  

The state must focus on spending restraint and reforming the tax code to inspire, not inhibit economic growth. 

Photo Credit: 
WV Division of Culture & History

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New York Governor Andrew Cuomo Proposes New Vape Tax in Budget Request

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Posted by Paul Blair on Wednesday, January 18th, 2017, 5:07 PM PERMALINK

In his $152.3 billion state budget proposal, Governor Andrew Cuomo (D-N.Y.) proposed a 10-cent per mL tax on the liquid contained in electronic cigarettes and vapor products. The tax would be imposed on the wholesale level and would apply both to e-liquid that contains nicotine and e-liquid that does not. According to state revenue estimates, the tax would generate $3 million annually.

This reckless tax hike proposal flies in the face of conclusive evidence that vapor products are effective smoking cessation tools that represent no greater than 5 percent of the harms to consumers as traditional combustible tobacco cigarettes. Balancing the state budget on the backs of smokers looking to quit flies in the face of decades of efforts aimed at curbing cigarette use to drive down public health costs.

Currently, six states impose an excise tax on vapor products including North Carolina (5 cents per mL), Louisiana (5 cents per mL), Kansas (20 cents per mL), West Virginia (7.5 cents per mL), Pennsylvania (40% wholesale), and Minnesota (95% wholesale). Beginning April 1, California will also impose a 27.3% wholesale tax on vapor products.

Earlier this month I outlined the possible relationship between state overspending problems like New York's and possible tax threats to vapor products in the states. That map can be found below and the original piece can be read here. Click the map to enlarge. 

Though only a small portion of Cuomo’s large tax hike plans (including an extension of the nearly 9% “temporary” tax surcharge on income over $1 million), the tax on vapor products is among the most punitive. It not only targets smokers, who are some of the most heavily taxed consumers in the United States, but it targets former smokers who have found vapor products as a successful means of quitting smoking. Similar to other nicotine replacement therapies (NRTs), vapor products should remain taxed at the sales tax rate exclusively.

The state’s declining revenue collections from cigarettes may play a role in the increased interest from the governor in taxing vapers. During the current fiscal year, tobacco products generated about $1.3 billion for the state, a figure projected to decrease to roughly $1.2 billion this year and even further in future years. At $4.35 per pack, New York’s state cigarette tax is the highest in that nation. Residents of the Big Apple are hit with another local tax that brings smokes bought there to a per pack tax rate of $5.85.

This high cigarette tax rate has led to the highest rate of cigarette smuggling in the nation. According to an analysis conducted by the nonpartisan Tax Foundation and Mackinac Center for Public Policy, 55.4 percent of cigarettes consumed in the state are smuggled in, which helps consumers avoid paying taxes on the products. 

Unlike cigarettes, consumers can purchase vapor products online where taxes are not collected or imposed by the government. This will result in the closing of vape shops across the Empire State, a loss in sales, income, and excise tax revenue, and will harm those seeking a brick and mortar experience in their quit journey.

The legislature should reject this senseless cash grab and focus on spending restraint instead.

Want to keep up to date with news like this? Subscribe to my newsletter, "Vapor News and Views," by clicking here. 

Photo Credit: 
Flickr: Diana Robinson

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State Overspending May Be A Significant Problem for Vapers in 2017

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Posted by Paul Blair on Wednesday, January 4th, 2017, 8:09 AM PERMALINK

As the 2017 legislative session kicks off in states across the country, three-fifths of states face overspending problems that will force serious discussions about currently collected tax revenue and future spending levels. More commonly but incorrectly referred to as budget shortfalls, states across the country face a conflict between anticipated revenue levels and out of control budget growth. It should come as no surprise to consumers of vapor products that this presents the threat of new product taxation in states where sin taxes have not yet been imposed.

Electronic cigarettes and vapor products are used by millions of consumers in the United States as a means to quit smoking combustible, or traditional cigarettes. The mounting evidence suggests that these smoking cessation products are at least 95 percent less harmful than cigarettes. That, however, hasn’t deterred lawmakers from targeting the growing multi-billion dollar industry and its consumers with tax hikes.

By sheer number of threats in recent years, vapor products have been the number one targets for tax hikes of any product or type of tax imposed by states, including cigarettes. And while lawmakers have succeeded at raising or phasing in more increases in state cigarette taxes (15 times since 2013), the imposition of entirely new sin taxes on vapor products in 6 states (plus once by voters) is a trend we at ATR will continue to monitor.

In each of the seven states that will impose an excise tax on vapor products in 2017, six came about as part of a tax package between 2012 and 2016 that also increased the state cigarette tax rate. The trend of considering tax increases on both products at the same time mirrors a national problem the vapor industry and its consumers face; the incorrect perception that the products are similar because vaping looks like smoking and thus a natural extension of a cigarette tax hike is an e-cigarette tax hike as well.

Related: Cigarettes: A Case Study in the Slow Rise of Excise Taxes  

Until the emergence of vapor products, cigarettes were the number one targets of tax hikes in the states. Between 2000 and 2016, 48 states and the District of Columbia passed 135 state cigarette tax increases, five times the number of tax hikes passed on liquor. 

Below is a summary of legislative tax changes imposed last year alone. As you can see, state tobacco tax hikes represent the second largest type of tax hike from FY17. 

Cigarettes are a popular scapegoat for overspending and shortfalls because the taxes can bring in somewhat significant revenue quickly without much opposition from consumers, even if it the money may be short-lived, cause budget volatility, lead to black markets, and punitively punish the poor. Regardless, cigarettes remain a top target for tax-hungry politicians.

In an era (post-2010 GOP gains across the country) of opposition to broad-based tax increases (a win for most taxpayers), sin taxes are an easy target for politicians in tough economic times who wish to raise as much money as possible from as few voters opposed. Though misguided, it’s the reality. As such, with more than half of U.S. states facing overspending problems (shortfalls), 2017 may be a tough year for lawmakers, “sinful” product consumers, and small businesses across numerous industries.

To preview the states where new vapor product taxes may be a real risk, I’ve compared the states with budget shortfalls (MultiState rundown here) to those that have passed a cigarette tax increase in recent years. In most cases, states that have passed a cigarette tax in the last four years are unlikely to do so again this year and new standalone vapor taxes will be rare, though possible.

Overspending problems aren’t the only things that cause tax hikes; some politicians are simply addicted to your money. As such, I’ve also included a number of states where budget discussions and the political climate lend itself to a real threat that a vapor product tax may be sent to the governor’s desk regardless of a stable budget outlook.

Click here for a larger version of the map. 

States with a defined overspending problem in 2017 where cigarette taxes have not been raised in the last four years (2012-2016), and the projected budget gap:

  • Alaska: $4 billion;
  • Colorado: $119 million;
  • Delaware: $350 million;
  • Illinois: greater than $10 billion;
  • Indiana: $378 million;
  • Iowa: $132 million;
  • Maryland: greater than $175 million;
  • Missouri: greater than $200 million;
  • Nebraska: nearly $1 billion;
  • New Mexico: $69 million;
  • New York: $689 million;
  • North Dakota: $310 million;
  • Oklahoma: $868 million;
  • Virginia: $861 million;
  • Washington: $474 million;
  • Wisconsin: $693 million;
  • Wyoming: $156 million.

 

States with an undefined but possible shortfall and no recent cigarette tax hike:

  • Montana – governor has already called for a tobacco tax hike;
  • South Dakota;
  • Texas: lackluster forecast. 

 

States with a budget shortfall, cigarette tax hike in last four years, and possible vapor tax:

  • Alabama: greater than $40 million;
  • Connecticut: greater than $1.3 billion;
  • Massachusetts: nearly $300 million;
  • Oregon: $1.7 billion;
  • Rhode Island: $112 million;
  • Vermont: greater than $40 million.

 

States without a budget shortfall but possible vapor tax:

  • Ohio – vapor tax proposed by current governor in prior years;
  • Hawaii – the state with more tobacco bills annually than anywhere else.

 

States without a shortfall or reason to believe there will be a successful effort to impose a vapor tax in 2017 include Arizona, Arkansas, Florida, Georgia, Idaho, Kentucky, Maine, Michigan, Nevada, New Hampshire, New Jersey, South Carolina, Tennessee, Utah.

Summary, in case you skipped to the bottom: A lot of states have overspent tax dollars in recent years, quickly forgetting (or neglecting) the impact of slow recession-era growth on budgets and state governments. Unfortunately for consumers, targeted excise taxes on products like cigarettes and a misconception that vaping is smoking by another name has put consumers of life-saving products like electronic cigarettes in the crosshairs of the ever-present threat of tax increases at the state level.

Americans for Tax Reform opposes all tax increases as a matter of principle and will continue to monitor and fight efforts to subject life-saving products like vapor products to new and higher taxes.

To keep up to date on all of Americans for Tax Reform’s work on vapor issues at the local, state, and federal level, subscribe to our newsletter, Vapor News and Views, by clicking here

Publisher's note: The assessments made in this post are based predominantly on the fiscal conditions of states in 2017. It is quite possible that additional states, like Utah and Nevada, will consider proposals to tax vapor products despite a nonexistent need to balance the state budget beyond projected tax collections and spending rates. It is also possible that states labeled possible threats will not consider excise taxes on vapor products as smarter alternatives such as spending restraint is considered instead. This map and post simply serves as a suggestion that where tax hikes are considered, history can be a strong but not guaranteed indicator of future outcomes.  

If you’re interested in more information on 2017 state budget conditions, read the National Association of State Budget Officers most recent “Fiscal Survey of States.”

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