State Overspending May Be A Significant Problem for Vapers in 2017
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.
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.
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.
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.”