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Electronic cigarettes are battery-powered cigarette lookalikes that heat liquid nicotine to emit vapor. The apparatus consists of a rechargeable lithium battery, a liquid cartridge that typically contains nicotine, propylene glycol or glycerol, flavoring, and other additives, and an LED light at one end that simulates the burning of a regular cigarette. When the user inhales, a heating element oratomizer converts the liquid in the cartridge into a white aerosol that is either odorless or bears the aroma of added flavoring. One does not smoke an e-cigarette – one vapes it.
The use of e-cigarettes is growing. According to the Centers for Disease Control and Prevention, about one in five adult smokers tried an e-cigarette between 2010 and 2011. As discussed below, surveys indicate that most smokers use e-cigarettes to cut down on cigarette consumption or quit smoking altogether. Typically, smokers who turn to e-cigarettes do so after unsuccessfully using standard cessation methods such as nicotine gum or a nicotine patch. Smokers may prefer e-cigarettes over patches and gums for several reasons. E-cigarettes produce a higher concentration of nicotine in the blood and provide a quicker fix because the pulmonary route is the fastest practical way to deliver nicotine to the brain. E-cigarettes also offer visual, tactile, and gestural similarities to traditional cigarettes.
As e-cigarettes have increased in popularity, so too have proposals to regulate and tax them. The Food and Drug Administration is poised to propose regulating e-cigarettes as tobacco products and many state and local jurisdictions are moving to ban e-cigarettes from bars and restaurants. Senate lawmakers have introduced legislation that would subject e-cigarettes to the federal tobacco tax if, or more likely when, the FDA carries through on its plans to regulate e-cigarettes. One state, Minnesota, is already taxing e-cigarettes and other states are considering taxing them.
In this article, we discuss the proper tax treatment of e-cigarettes. We conclude that e-cigarettes should not be subject to tobacco excise taxes because, based on currently available medical information, they do not pose health risks remotely comparable to those posed by traditional tobacco products and therefore do not present the same harmful effects to society. Taxation cannot be justified by the similarity in appearance of e-cigarettes to cigarettes or by the possible reduction in tobacco tax revenue arising from the substitution of e-cigarettes for cigarettes. Leaving e-cigarettes untaxed is particularly important because it makes e-cigarettes more attractive than cigarettes to smokers, giving them an incentive to switch.
We begin with a brief overview of the regulatory treatment of e-cigarettes, followed by a discussion of the recent proposals to tax them. We then review the rationale of tobacco taxation and the public health effects of e-cigarettes, concluding that they should not be subjected to tobacco excise taxes.
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