A Federal Vaping Tax Is Bad Policy and Bad Politics

The proposed vaping tax has caused a third Democrat to join Sens. Joe Manchin and Kyrsten Sinema in opposing the bill.

It remains far from certain that Democrats will be able to cobble together the necessary 50 votes to pass President Joe Biden's "Build Back Better" plan through the Senate.

Here's one thing that is more certain: A new federal tax on vaping that's included in the latest version of the proposal is only making the vote counting more difficult.

Joining Sens. Joe Manchin (D–W.Va.) and Kyrsten Sinema (D–Ariz.) as crucial holdout votes on the package is Sen. Catherine Cortez Masto (D–Nev.), who told The Wall Street Journal this week that she won't vote for the nicotine tax. "I'm very clear. I don't support any type of tax, a regressive tax on the very people that we're trying to cut costs, cut taxes on," she told the Journal.

The proposed vaping tax, as Reason's Christian Britschgi explained last week, would slap a new excise tax on any nicotine product "that has been extracted, concentrated, or synthesized" (i.e., nicotine-containing vaping liquid) at the rate of $50.33 per 1,810 milligrams of nicotine. That means a four-pack of Juul pods would increase by $4.62, and the tax would add $20.16 to the retail price of a 60-milliliter bottle of 12 mg/mL e-liquid, according to Vaping360, a trade publication. The new federal tax would also hike state taxes in several places, since it would be applied to the wholesale price and state taxes are applied as a percentage of retail prices—which would necessarily increase due to the new federal tax.

The White House says the vaping tax doesn't violate Biden's pledge that families earning less than $400,000 would not face tax increases because "the proposed tax increase doesn't violate that pledge because vaping isn't a required cost for families," according to the Journal. In other words, it totally violates that pledge—but the Biden administration knows vapers are a small enough constituency that it doesn't matter.

But the vaping tax isn't just bad tax policy. It's bad public health policy, too.

The original version of the "Build Back Better" plan would have taxed both cigarettes and their electronic cousins. But the revamped framework drawn up by the House earlier this month dropped the cigarette portion of the tax and now targets only vaping.

Making Juul pods and e-liquid more expensive will make traditional cigarettes a more attractive option, economically. Michael Pesko, an economist at Georgia State University, wrote in a November 8 letter to Congress that the proposed nicotine tax would "increase cigarette use across all populations and cause significant public health harm." Among other things, he estimates that 5.5 additional packs of cigarettes will be sold for every electronic cigarette pod that the tax keeps out of consumers' hands.

Given all that, the vaping tax's effects on the delicate math in the Senate might be one of the worst ways to judge its merits—or lack thereof. But the cynical political calculus matters too. Are Democrats who support the tax really willing to jeopardize the passage of everything else in the "Build Back Better" plan just to stick it to e-cigarette users?

Democrats hope to pass the "Build Back Better" plan through the Senate using the reconciliation process, which allows a simple majority to make changes to budgetary matters (tax and spending policy, mostly). That means Democrats don't have to worry about a Republican filibuster. But they still need 50 votes (plus a tie-breaking vote from Vice President Kamala Harris) for the maneuver to work. With Manchin and Sinema still on the fence, they have only 48 affirmative votes. Losing Cortez Masto means they have 47. No matter what Sen. Bernie Sanders (I–Vt.) might think, 47 senators can't do much.

To recap: The vaping tax included in the latest version of the House's "Build Back Better" plan is regressive tax policy, poor public health policy, and hurts Democrats' chances of passing the rest of the package through Congress.

Other than that, it seems like a great idea.