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.  

New Jersey companies will get stuck with higher taxes than communist China if the Democrats' reconciliation bill is enacted.

The Democrats' reconciliation bill will saddle New Jersey with a combined federal-state corporate tax rate of 35% vs. communist China's 25%.

The bill will also put New Jersey companies at a competitive disadvantage vs. Europe: The European average corporate tax rate is 19%.

New Jersey is home to 16 Fortune 500 companies. 

"As the country tries to recover from a once-in-a-century pandemic, New Jersey's congressional Democrats must explain why they want to stick residents with higher taxes than China and Europe," said Grover Norquist, president of Americans for Tax Reform.

The Democrats' $3.5 trillion bill will impose the largest tax increase since 1968.  It will raise individual income taxes, small business taxes, corporate taxes, and capital gains taxes. If passed, the combined federal-state capital gains tax rate for New Jersey residents would be 42.55% vs. China's 20%.

The burden of the corporate tax rate hike will be borne by workers in the form of lower wages, and by households in the form of higher prices. Higher corporate tax rates will also raise utility bills.

The non-partisan Joint Committee on Taxation recently affirmed in congressional testimony that the corporate tax rate hike will fall on "labor, laborers."

Testifying before the House Ways & Means Committee, JCT Chief of Staff Thomas A. Barthold said:

"Literature suggests that 25% of the burden of the corporate tax may be borne by labor in terms of diminished wage growth."

WATCH:

Economists across the political spectrum agree that workers bear the brunt of corporate tax increases. And 25% is on the very low end.

According to the Stephen Entin of the Tax Foundation, labor (or workers) bear an estimated 70 percent of the corporate income tax. He wrote in 2017:

"Over the last few decades, economists have used empirical studies to estimate the degree to which the corporate tax falls on labor and capital, in part by noting an inverse correlation between corporate taxes and wages and employment. These studies appear to show that labor bears between 50 percent and 100 percent of the burden of the corporate income tax, with 70 percent or higher the most likely outcome."

A 2012 paper at the University of Warwick and University of Oxford found that a $1 increase in the corporate tax reduces wages by 92 cents in the long term. This study was conducted by Wiji Arulampalam, Michael P. Devereux, and Giorgia Maffini and studied over 55,000 businesses located in nine European countries over the period 1996-2003:

"We identify this direct shifting through cross-company variation in tax liabilities, conditional on value added per employee. Our central estimate is that $1 of additional tax reduces wages by 92 cents in the long run. The incidence of a $1 fall in value added is smaller, consistent with our wage bargaining model."

A 2015 study by Kevin Hassett and Aparna Mathur found that a 1 percent increase in corporate tax rates leads to a 0.5 percent decrease in wage rates. The study analyses 66 countries over 25 years and concludes that workers could see a greater reduction in wages than the federal government raises in new revenue from a corporate income tax increase:

"We find, controlling for other macroeconomic variables, that wages are significantly responsive to corporate taxation. Higher corporate tax rates depress wages. Using spatial modelling techniques, we also find that tax characteristics of neighbouring countries, whether geographic or economic, have a significant effect on domestic wages."

A 2006 study by William Randolph of the Congressional Budget Office found that 74% of the corporate tax is borne by domestic labor:

"Burdens are measured in a numerical example by substituting factor shares and output shares that are reasonable for the U.S. economy. Given those values, domestic labor bears slightly more than 70 percent of the burden of the corporate income tax."

A 2007 study by Alison Felix estimated that a 1 percentage point increase in the marginal corporate tax rate decreases annual wages by 0.7 percent. She concluded that the wage reductions are over four times the amount of collected corporate tax revenue:

"The empirical results presented here suggest that the incidence of corporate taxation is more than fully borne by labor. I estimate that a one percentage point increase in the marginal corporate tax rate decreases annual wages by 0.7 percent. The magnitude of the results predicts that the decrease in wages is more than four times the amount of the corporate tax revenue collected."

A 2012 Harvard Business Review piece by Mihir A. Desai notes that raising the corporate tax lands “straight on the back” of the American worker and will see a decline in real wages:

"Because capital is mobile, high tax rates divert investment away from the U.S. corporate sector and toward housing, noncorporate business sectors, and foreign countries. American workers need that capital to become more productive. When it’s invested elsewhere, real wages decline, and if product prices are set globally, there is no place for the corporate tax to land but straight on the back of the least-mobile factor in this setting: the American worker."

Even the left-of-center Tax Policy Center estimates that 20 percent of the burden of the corporate income tax is borne by labor:

"In calculating distributional effects, the Urban-Brookings Tax Policy Center (TPC) assumes investment returns (dividends, interest, capital gains, etc.) bear 80 percent of the burden, with wages and other labor income carrying the remaining 20 percent."

"Democrats would be wise to oppose any tax increase," said Norquist.

While the Food and Drug Administration (FDA) and Congressional Democrats are trying to tax and regulate the vaping industry out of existence based on claims of a "youth epidemic", newly released data from the the Centers for Disease Control and Prevention (CDC) and the FDA's 2019 and 2020 National Youth Tobacco Surveys conclusively demonstrates that this myth is not grounded in any factual bases. 

Current data shows that only 3.1% of High School Students and just 0.2% of Middle School students vape daily, and the number of students who had experimented with at least one puff of a e-cigarette in the last 30 days plummeted by 50% since 2018.  These numbers are expected to fall further, as policies such as Tobacco 21 and increased enforcement reduces the ability for young Americans to have access to these products.

While certainly it would be ideal if no high school students used these products, to claim 3.1% of high school and 0.2% of middle school students vaping is somehow an "epidemic" is laughable nonsense.

To cut off access for adults trying to quit smoking with a product proven 95% safer which has the potential to save millions of lives on the basis of a myth which government provided data easily disproves will be remembered as one of the worst public health decisions of a generation. 

If Manchin gets his way on a corporate income tax rate increase, he will have to explain why he just increased West Virginians' utility bills

If Sen. Joe Manchin gets his way and hikes the corporate income tax rate, West Virginia households and businesses will get stuck with higher utility bills as the country tries to recover from the pandemic.

According to a document published by Politico today, Manchin wants to raise the federal corporate income tax rate to 25% which would impose a combined federal-state rate of 29.9% on West Virginia businesses.

Manchin would stick his own state's businesses with a higher combined tax rate than China's 25% and the European average of 19%.

The cost of this corporate tax rate hike will be directly built into utility rates.

Electric, gas, and water companies must get their billing rates approved by the respective state utility commissions. When the 2017 Tax Cuts and Jobs Act cut the corporate income tax rate from 35% to 21%, utility companies worked with state officials to pass along the tax savings to customers, including at least three West Virginia utilities.

The savings typically come in the form of a rate reduction, a bill credit, or a reduction to an existing or planned rate increase. 

According to a report published in the trade publication Utility Dive, customers nationwide were to receive a $90 billion utility benefit from the Tax Cuts and Jobs Act:

Estimates derived from 2017 annual SEC 10-K filings indicate that the 14-percentage-point reduction in the corporate tax rate enacted under the 2017 Tax Cuts and Jobs Act (TCJA) resulted in investor-owned utilities establishing significant regulatory liability balances, totaling approximately $90 billion to be refunded back to customers.

Americans for Tax Reform has compiled a 90-second nationwide utility savings video from local news reports which may be viewed here.

If Manchin and the Democrats now impose a corporate income tax rate increase, they will have to reckon with unhappy constituents and local news coverage noting utility bills are going up. A vote for a corporate income tax hike is a vote for higher utility bills as households try to recover from the pandemic.

Tax Cuts and Jobs Act Impact: Working with the Public Service Commission of West Virginia, Appalachian Power Company, Potomac Edison and West Virginia American Water passed their tax savings along to their customers. 

Potomac Edison: As noted in this August 24, 2018 Herald-Mail excerpt:

‘More than 85,000 Potomac Edison customers in the Eastern Panhandle should see lower bills in the coming weeks thanks to federal tax reforms adopted in December.

The West Virginia Public Service Commission announced Friday that it approved rate reduction settlements for utility companies totaling almost $85 million annually, starting next month.

Appalachian Power Company: As Noted in a May 30, 2018 MetroNews article excerpt:

Appalachian Power Company saved $235 million dollars from the federal tax cuts and the company is proposing passing the money back to its customers in a variety of ways.

The multi-pronged proposal is in a filing with the state Public Service Commission due Wednesday. The PSC is requiring all utilities to tell it their tax cut savings and what they plan to do with it.

West Virginia Consumer Advocate Jackie Roberts told MetroNews the money clearly belongs to the customers.

“They (the utilities) had taxes in their rates and now the taxes in their rates have significantly decreased—so they shouldn’t be able to keep collecting and keeping those higher taxes in their rates,” Roberts said.

Appalachian Power Company Communications Director Jeri Matheney agrees–the $235 million Appalachian Power will save belongs to its customers.

“It is customer money. What we propose to do is provide a method to keep rates as stable as possible over the longterm and as much as possible eliminate the need for rate increases,” Matheney said.

The Appalachian Power distribution proposal for West Virginia customers includes:

–$131 million to completely offset the company’s fuel and vegetation control program funding request that was part of an April filing with the PSC

–$19 million reduction in the company’s base rate case filed earlier this month (taking the $115 million request down to $96 million)

–$51 million to reduce next year’s fuel recovery cost rate case

–$1 million for a pilot economic development grant program

West Virginia American Water: As noted in this August 21, 2018 Bluefield Daily Telegraph excerpt:

West Virginia American Water Company announced a settlement plan last week which — if approved by the PSC — would result in an average savings of $3.77 a month for water and sewer customers in the state.

“The recent federal tax reform will save our customers an estimated $4.6 million annually, so we are passing these savings on to our customers beginning next month,” Brian Bruce, president of West Virginia American Water.

Conversely, if Manchin and the Democrats raise the corporate tax rate, they will add to the burden faced by working families. And many small businesses operate on tight margins and can't afford higher heating, cooling, gas, and refrigeration costs.

Besides, when Manchin asked West Virginians to send him to Washington, he said:

"I can't look the people in West Virginia in the eye and ask them to pay a penny more until I know we're running this government efficiently."

Back then he also said any tax increases should be avoided during a recession, which is germane to our current attempt to recover from a devastating, once-in-a-century pandemic:

"I don't think during a time of recession you mess with any of the taxes."

What happened, Senator?