Vapor Products and Tax Policy
As of January 1, 2016, four states, the District of Columbia, and three local jurisdictions have enacted taxes on vapor products (electronic cigarettes), but their methods and levels of taxation vary dramatically. In 2015, at least an additional 23 states considered excise taxes on vapor products.
Vapor products are generally found to have a much lower risk profile than traditional incinerated cigarettes. Public Health England, housed in the British Department of Health, issued findings that vapor products are 95 percent less harmful than cigarettes and can serve as an effective tobacco-cessation method. Vapor products likely have much lower externalities than traditional cigarettes, and it follows that the excise taxes on the products should be lower or nonexistent. Punitive taxes on vapor products could inadvertently close out options for cigarette users looking to quit.
A sound approach to the taxation of vapor products would avoid discriminating between disposable and rechargeable vapor products; it would avoid extending punitive tax rates from traditional cigarettes to vapor products, and would not hinder consumer opportunities for the use of vapor products as a method of smoking cessation.