Democratic Governor Opposes Biden's New Tobacco Taxes

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Posted by Dennis Hull on Friday, October 1st, 2021, 4:55 PM PERMALINK

Kentucky Governor Andy Beshear has finally found a tax hike that he doesn't like. Beshear warned President Joe Biden last week that new federal taxes proposed by members of their party would cause "significant, severe, and quick loss of jobs in the remaining Kentucky tobacco industry, especially in Hopkinsville where much of the product is processed." 

Vaping products are already taxed substantially by state governments at the producer level. Rates vary from 5% of the wholesale price in South Carolina to 95% in Minnesota, where research indicated that the high excise tax deterred 32,400 people from quitting cigarettes. Producers are hit hard by that tax, with state and local governments collecting $20 billion in total tobacco tax levies in 2019. Last year, states collected between $1 and $10 million on vaping products alone. 

The new tax will also lead to disastrous economic consequences for retailers and family-owned tobacco shops in Kentucky. In addition to eliminating 295 jobs, the tax hike is projected to reduce wages by $11.6 million. Vape shops – deemed "essential businesses" during the pandemic – are often operated by diverse, first-generation owners and families. The hefty new tax will lower the demand for e-cigarettes and drive many smaller shops out of business. 

Meanwhile, sales revenue will drop by $20.7 million across nearly 4,700 tobacco retailers in the state, more than half of which are single-owner operations. Ironically, state and local governments will also experience reduced tax revenue since nicotine purchases fuel more than a third of total sales at convenience stores across the state. 

If these new taxes are ultimately successful, businesses in Kentucky and throughout the country will bear unacceptable financial consequences and consumers will lose access to valuable harm-reduction products. Vapor products are 95% safer than combustible cigarettes, making them a natural alternative for smokers looking to quit. Compared to traditional nicotine replacement therapies like patches and gums, adult smokers are more than twice as likely to quit using an e-cigarette. New federal taxes would significantly reduce the appeal of switching from toxic cigarettes.  

For example, the federal government is actively disincentive vaping with a regressive 2,000% tax hike on e-cigarettes. That's an extra $2.25 per pod of vaping fluid, far higher than the current tax of $1.01 per pack of cigarettes (and higher even than the proposed new cigarette tax of $2.01). Moreover, for many smokers – nearly 75% of whom are from low-income communities – the new tax will make the switch to vaping far less appealing, potentially encouraging them to switch back to dangerous combustible cigarettes.  

Beshear’s opposition to new taxes on vapor products is good news for Kentucky and former smokers across the nation. Other Democratic governors like Governor Roy Cooper  should follow Beshear’s lead and look to better solutions to pay for their spending bill – ones that do not unfairly target law-abiding adult smokers, family-owned tobacco stores, and Kentucky's producers.  

Photo Credit: Office of the Governor, Commonwealth of Kentucky

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