Although more Americans are turning to e-cigarettes for their nicotine fixes, a new government study found that the rise of vaping has had little impact on decreasing traditional tobacco tax revenues.
In a study released Monday, the Government Accountability Office “found no current evidence” that the burgeoning, multi-billion dollar e-cigarette industry is depressing cigarette tax revenue, which has been declining by roughly $5 million per month over the last six years.
The main reason why the e-cigarette industry doesn’t appear to be impacting its conventional counterpart is size. The agency noted that the $2.5 billion e-cigarette market is still “relatively small” compared to the cigarette market, which garnered $80 billion in sales in 2014.
“Without a substantial increase in the e-cigarette market, any effect on the cigarette market would be too minor to significantly affect cigarette FET (federal excise tax) revenue,” GAO reported.
It did state that the situation is very much dynamic, however, given the steam-like rise of electronic tobacco consumption among US adults and adolescents. A 2014 Center for Disease Control report cited by GAO found that percentage of adults who had used e-cigarettes more than doubled to 2.6%–up from just 1% in 2010. The CDC found an even more dramatic rise among high school students, where 13.4% reported using e-cigarettes compared to just 1.5% in 2011.
Traditional tobacco products are subject to a federal excise tax. E-cigarettes are not.
In 2014, the Food and Drug Administration proposed regulating e-cigarettes under the Tobacco Control Act—a move that could open up the products to taxation. The agency, thus far, has yet to release a final rule.
In the meantime, GAO conducted its review of the e-cigarette market at the behest of the Senate Finance Committee.
The agency lamented, however, the lack of available data on e-cigarette use in the United States.
Both the FDA and the Treasury Department collect information on traditional tobacco products—primarily to ensure that proper taxes are paid. Neither do the same kinds of studies on electronic tobacco products.
“Without such data and information, estimating the effect of e-cigarette use on cigarette FET revenue will be difficult, even if the e-cigarette market continues to grow,” GAO stated.
A patchwork of state laws represent current efforts in the US to tax vapers. North Carolina and Minnesota are the only two states in the nation that tax e-cigarettes. At least 18 other states, plus Washington, DC, are considering new tax measures.
Around the world, Italy, Portugal, Spain, and Serbia have all passed laws to tax e-cigarettes.
