Democrats Hike Taxes on Vaping, but Not Tobacco, in Latest Version of ‘Build Back Better’ Bill

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Democrats are trying to pay for regressive tax cuts in their social spending bill with a big regressive tax hike on vapers. The latest version of the “Build Back Better” plan that’s currently being considered in the House of Representatives 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.

This is mercifully only half the size of the vaping tax that was included in the first version of the bill. It would nevertheless lead to a massive tax increase on vapers and the businesses that sell to them.

“This tax will close my shop,” Keith Gossett, the owner of Bucky’s Vape Shop in Columbus, Georgia, told Reason in September about the previous plan to tax vaping liquids at a rate of $100.66 per 1,810 milligrams of nicotine.

The old proposed tax hike would have raised the price of most nicotine-heavy products Gossett sold from $15 to around $75. The new tax proposed by Democrats would instead increase prices of the same products to about $45, or triple what they currently are.

That’s bad news for small businesses. It’s also bad news for people who are or might be tempted to switch to vaping as a safer alternative to smoking traditional, combustible cigarettes.

Cigarettes also faced steep tax hikes under the old “Build Back Better” bill, somewhat offsetting the higher tax rate that was being slapped on competing vaping liquids. The new bill released this week, however, leaves cigarette taxes untouched.

I don’t like the idea of using taxes to encourage people to make healthier decisions. But this latest tax scheme actively encourages people to make unhealthy decisions by trying to make the tax rate between dangerous cigarettes and much safer vaping products equivalent.

Targeting nicotine levels adds a whole extra layer of nonsense to the tax, says the Tax Foundation’s Ulrik Boesen.

“A good [tax] design means internalizing externalities related to consumption of a product. With tobacco and nicotine product consumption, these externalities are (1) the health risks connected to frequent use and (2) quantity consumed,” he writes. “Nicotine is the addictive substance in the products, but not the harmful ingredient. In other words, the proposal does not target the harmful behavior directly.”

The proposed nicotine tax would raise about $10 billion at most, Boesen estimates, and maybe much less given the Food and Drug Administration’s current crackdown on which vaping products are allowed in the market.

This revenue will come in lieu of the money Democrats were hoping to raise by cracking down on various estate and gift tax avoidance schemes favored by the wealthy, reports The Intercept, thus “replacing a tax that was highly progressive with one that is highly regressive.”

To be sure, cutting taxes on the wealthy—or in the “Build Back Better” bill’s case, choosing not to increase their effective tax rate—is usually a good idea. But paying for those tax cuts (or unrealized tax increases) with higher taxes on poorer people who are also trying to quit smoking doesn’t seem like the optimal policy.

Fortunately for vapers, Sen. Joe Manchin (D–W.Va.) has come out against the proposed nicotine taxes.

That alone could sink the bill in Senate. The Democrat-controlled House is expected to vote on its version of the “Build Back Better” plan today.

FREE MINDS

Perhaps in the hopes of getting some positive coverage of their spending bill, House Democrats are also proposing new subsidies for “local journalism.” The latest version of the “Build Back Better” bill also folds in a plan to give refundable tax credits of up to $25,000 per local, news-gathering journalist who is employed by either a newspaper or digital news outlet. Publishers with as many as 1,500 employees could claim this tax credit, up from a previous version that would have only made the tax credits available for publications with up to 750 employees.

There are a number of problems with subsidizing the news media in this way. Perhaps the biggest one is that it puts the federal government, and specifically the taxman, in the position of deciding who meets the bill’s somewhat subjective definition of a journalist.

As I wrote in September, “imagine IRS agents poring over a newspaper (or Substack) to see if it qualifies for special tax treatment. Not exactly an image consistent with the First Amendment.”

FREE MARKETS

New York City Mayor–elect Eric Adams is shaking up things at city hall already with a surprise endorsement of cryptocurrency. On Thursday, Adams said that he wanted to make the Big Apple the center of this new industry and that to help things along, he would be taking his first three paychecks in the form of bitcoin, reports Forbes.

Adams made the announcement on Twitter in response to Miami Mayor Francis Suarez, who said that he would like his next paycheck to be 100 percent bitcoin.

QUICK HITS

• Los Angeles is temporarily deferring fines against businesses that are found not enforcing the city’s vaccine mandate, which the Los Angeles Times describes as “some of the nation’s strictest COVID-19 vaccine verification rules.”

• Shoplifting in San Francisco is getting so bad that even the cops are allegedly joining in. The San Francisco Chronicle reported yesterday that an off-duty police sergeant was arrested on suspicion of robbing a Rite Aid.

• Virginia’s incoming state attorney general wants to change the law to allow his office to step in when local prosecutors are being too lenient. Sen. Tom Cotton (R–Ark.), who thinks we have an underincarceration problem, loves the idea.

• Pfizer says its new COVID-19 treatment is 90 percent effective at preventing hospitalization.

• American companies are stepping up hiring, adding 531,000 jobs in October, reports Politico.


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