D.C. Budget Would Hike Taxes on E-Cigarettes to 70 Percent
Taxing e-cigs the same as analogs will put local vape shops out of business, and still won't discourage vaping-or increase revenue.
E-cigarettes aren't "tobacco products," but to the Washington, D.C., city council, that's just semantics. The proposed 2016 budget includes an amendment to "include 'vapor products' in the term 'other tobacco product,'" a change that, if passed, will allow the city to tax e-cigarettes at the same rate as their combustable forebears. According to an August 2014 memo from the Office of Tax and Revenue, "the rate of tax applicable to wholesale sales of other tobacco products is 70%."
D.C. has already experienced firsthand the effects of excise tax hikes. When it raised the tax on cigarettes by 25 percent in 2009, instead of revenue increases, the city lost income. As Reason's J.D. Tuccille noted, "Politicians simultaneously want to maximize revenue and raise taxes so high that they discourage…socially unacceptable tobacco consumption. Those are not compatible goals."
High excise taxes cause consumers to take their dollars elsewhere, Tuccille argues. And D.C. vape shop owners see that reality as the end of the line for their burgeoning businesses.
"That would double our prices, at least, and make it very difficult to stay in business," says Eric Miller, owner of DC Vape Joint, one of the handful of local shops specializing in e-cigs. "There's no way people are going to spend double the price for the same thing they've been getting. They'll just go to Virginia or Maryland, or they'll go online."
Sean Robinson, owner of District Vape, echoed Miller's concerns: "The tax is really geared toward big tobacco, which can take the hit," he says, but "mom-and-pop shops" like his won't survive if the budget passes in its current form. Several of the more ubiquitous e-cig brands (like Blu) are owned by tobacco conglomerates, but shops like Miller's and Robinson's specialize in smaller boutique brands.
"Taxes like this hand the market over to the bigger companies," says Alex Clark, legislative director of the Consumer Advocates for Smoke-Free Alternatives Association (CASAA).
The CASAA website features a post asking visitors to call and voice their concerns to the D.C. Council, and Miller and Robinson have been asking the same of their customers. But Robinson says he doesn't think the Council realizes the effect the change will have on local businesses like his.
The D.C. budget amendment isn't the first time lawmakers have tried to morph the definition of "tobacco" to include e-cigarettes. In January, an Arkansas state representative introduced a dedicated vaping tax, which is still under consideration. And in December of last year, Reason's Jacob Sullum reported on an attempt by three members of Congress to retroactively include e-cigs in a Master Settlement Agreement (MSA) that resolved state lawsuits against the tobacco industry by restricting Big Tobacco's ability to advertise. As Sullum pointed out, the maneuver wouldn't work:
First, as Michael Siegel notes on his tobacco policy blog, the MSA defines a cigarette, in part, as a product that contains tobacco. E-cigarettes do not contain tobacco. Durbin et al. argue that they sorta do, "because their key ingredient is nicotine, which is produced from tobacco leaves." By the same logic, THC is marijuana, quinine is cinchona bark, electricity is coal, milk is a cow, and maple syrup is a tree.
The D.C. Council is scheduled to vote on the proposed budget June 30.
Check out Reason's coverage of the New York e-cig ban: