NBER study shows e-cigarette tax increased adult smoking

A new study issued by the National Bureau of Economic Research (NBER) finds that higher taxes on electronic cigarettes could impede smokers’ efforts to quit smoking.

Researchers from the NBER, City University of New York and Bentley University analyzed smoking and vaping data from Minnesota, the first state in the US to tax electronic cigarettes in 2010 by broadening the definition of tobacco products. Three years later in 2013, the state raised the tax from 35% to 95% of the wholesale price, the same level applied to tobacco products. The lengthy record of taxing e-cigarettes and the significant jump in the rate of excise reveal the impact of taxation on smoking and vaping rates.

The study concludes that traditional cigarettes and electronic cigarettes are substitutes among current smokers and consequently taxing e-cigarettes the same as traditional cigarettes increased adult smoking and reduced smoking cessation in the state. Using data from the Current Population Survey Tobacco Use Supplements, the analysis suggests that an increase in the price of vapor products reduces the number of smokers who take up vaping and raises smoking rates. Specifically, in Minnesota the excise tax is associated with a significant increase in the prevalence of smokers among adults.

State excise taxes on traditional cigarettes also rose during this period from $1.23 per pack in 2013 to $2.90 in January 2015. Nevertheless, the price of e-cigarettes rose relative to combustible tobacco cigarettes.

The researchers estimate that the e-cigarette tax in Minnesota led to a decrease in quitting by about 1.4 percentage points. This implies that the tax deterred roughly 32,400 adult smokers in the state from quitting. If the Minnesota tax had been a national one, the researchers estimate that it would have deterred around 1.83 million smokers from quitting.

If e-cigarettes were taxed at the same rate as conventional cigarettes, as some have proposed, such a policy would “raise the price of e-cigarettes by approximately 62 percent, increase smoking participation by 8.1 percent and deter approximately 2.75 million smokers from quitting.”