Friday, January 3, 2020

Congratulations Minnesota! You “Saved” 32,400 Smokers from Quitting

Minnesota in 2010 became the first state to impose an e-cigarette excise tax, set at 35% of the wholesale price.  Three years later, the tax was increased to a whopping 95%.  It remains the nation’s highest e-cigarette tax.

Economists at the National Bureau of Economic Research, the City University of New York and Bentley University just released a report on the consequences of the Minnesota tax.  Henry Saffer and colleagues looked at U.S. Census Bureau surveys from 1992 to 2015, in order to understand Minnesota smoking trends compared with states that did not impose a large e-cigarette tax.  Saffer and colleagues excluded Massachusetts and Illinois, where cigarette excise taxes rose by $1.00 after 2010.

Figure 4 from the publication illustrates Saffer’s results.  While the decline in smoking flattened out in Minnesota after e-cigarette taxes were levied, the decline in the rest of the U.S. remained more pronounced. 

Saffer and colleagues report: “We find consistent and robust evidence that the e-cig tax in MN increased adult smoking relative to what it would have been in the absence of this tax… In 2014 there were about 600,000 adult smokers in Minnesota.  Our estimates indicate that the e-cig tax deterred about 32,400 adult smokers from quitting.” (emphasis added)

The authors add a warning to legislators and policymakers across the U.S.: “Currently there are approximately 34 million adult smokers.  If the Minnesota tax had been a national one, we estimate that it would have deterred around 1.83 million smokers from quitting.  Some have suggested that e-cigs should be taxed at the same rate as cigarettes.  Implementation of that policy would raise the price of e-cigs by approximately 62 percent, increase smoking participation by 8.1 percent, and deter approximately 2.75 million smokers from quitting.”

Saffer’s findings compliment those from a study earlier this year by economists at Georgia State, Temple University and the University of Kentucky.  Michael Pesko and colleagues found that “higher traditional cigarette taxes reduce adult traditional cigarette use and increase adult e-cigarette use, suggesting that the products are economic substitutes.” 

Two years ago, my colleague and I published a tobacco tax proposal for Kentucky.  We encouraged lawmakers to raise the cigarette tax but keep the tax on smoke-free products low (for smokeless) or nonexistent (for e-cigarettes).  Our proposal was adopted by the Kentucky legislature in 2018. 

Making e-cigarettes less accessible and more expensive keeps smokers smoking.  Unfortunately, this simple economic concept is routinely ignored by tobacco prohibitionists at all government levels.   

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