When Colorado voters approved a vast increase in the state’s tobacco and nicotine tax, opponents of the proposal voiced concern that the hike would fall short of projected revenue as seen in countless other states. They were right. According to a data analysis from The Colorado Sun, Colorado’s exorbitant tax hike on cigarettes and other nicotine-containing products has generated significantly less tax revenue than promised. Originally billed as an opportunity for the state to fund universal preschool, lower-than-expected revenues are an early sign that this policy is well on its way to being a failure for Colorado and a headache for lawmakers and activists who threw their support behind the tax hike.
Proposition EE, which passed by a wide margin as a ballot initiative last November, increased the tax rate on cigarettes by 230%, from $0.84 per pack to $1.94, effective January 2021. The tax will continue to rise incrementally until 2027 when it will level out at $2.64 per pack. The measure also increased the tax rate on other tobacco products from 40% of market price to 62%.
Also included in the proposition was the implementation of a 62% tax rate on vaping devices and refillable e-liquid. Previously, vaping products were exempt from tobacco taxes in Colorado. Implementing a tax rate on e-cigarettes equal to the rate on tobacco products is problematic for multiple reasons.
For one, e-cigarettes do not contain tobacco and therefore should not be classified as such for tax purposes. Secondly, e-cigarettes and vaping products have been shown to be at least 95% less harmful than traditional cigarettes. Exempting vapes from taxes or taxing them at a significantly lower rate than tobacco incentivizes people who use tobacco to make the switch to a less harmful alternative.
Health advocates, who overwhelmingly supported the proposition, argued that the tax hikes will reduce tobacco and nicotine use, despite evidence demonstrating otherwise. Data has consistently shown that tobacco tax increases have no statistically significant impact on the prevalence of smoking among those with household incomes less than $25,000 and 72% of smokers are from low-income communities.
For these folks, increasing taxes on products they are addicted to puts unnecessary hardship on them and their families. At a time when they can least afford it due to the economic brought about by the Covid-19 that most affected poorer, working-class individuals, this tobacco tax hike is particularly cruel. For this reason, the progressive group Working Families Party of Colorado advocated against the proposition.
Governor Jared Polis, one of the main proponents of the measure, said that the disproportionate impact that tobacco taxes have on low-income families, and by effect low-income children, would be offset by gaining access to preschool from increased tax revenue. So far, Governor Polis is being proven wrong. Even if revenues increase, and there is no reason to expect them to, funding for preschool won’t begin until 2023 at the earliest. It is surely little consolation to working families struggling to make ends meet today that their children might be able to attend preschool years in the future.
Unfortunately, one organization that rallied support for increasing the tax rate was Mental Health Colorado, a group that claims to be the state’s leading advocate in ensuring equitable access to health care for those struggling from mental illnesses and substance abuse disorders. This organization either does not know, or chose to ignore, the data showing e-cigarettes to be particularly helpful at getting people with mental health issues, who smoke at rates three to four times higher than the national average, to quit the deadly habit of cigarette use.
Other groups that threw their support behind the initiative included the American Federation of Teachers Colorado and the Colorado Education Association, who said that taxing vaping products would decrease vape use among teenagers. While teenage vaping is harmful and should be discouraged, there is clear evidence that restrictive vaping laws increase youth cigarette smoking, subjecting them to more harm than e-cigarettes could ever cause.
Another concerning aspect of the tax hike is the impact on organized crime and smuggling. It is highly likely that increased smuggling of tobacco products has contributed to the failure to meet expected tax revenue. A large-scale analysis from the Tax Foundation showed that excessive tax rates on cigarettes “induces substantially black and gray market movement”. Most tobacco smuggling is run by multi-million-dollar organized crime syndicates who also engage in human trafficking, money laundering, and use their profits to fund terrorism. The US State Department has gone so far as to declare tobacco smuggling a “threat to national security”.
Sadly, Colorado is not finished increasing tobacco taxes and restricting access to reduced risk alternatives to cigarettes. Over the next six years, the cigarette tax will climb an additional 136% and tax rates on tobacco products and e-cigarettes will rise as well. While there is no easy method of stopping these harmful policies, lawmakers and voters in other states must make note of the disastrous effects of Colorado’s tax hike and avoid enacting similar measures in their states.