JLF’s Roy Cordato writes here about a legislative move to thwart the sound principles of tax policy and impose a tax on e-cigarettes.
All excise taxes, by definition, distort economic and personal decision-making by penalizing some consumer choices relative to others. For economists, the first principle of taxation is what is called neutrality: The government should extract the money it needs from taxpayers without distorting their freely made decisions. As a matter of pure economics, it is not appropriate for the government to tax some goods and services more heavily than others. This distorts relative prices and therefore efficient resource allocation.
Current tax policy with respect to the sale of e-cigarettes gets it right. They are taxed at the same state and local sales tax rates that apply to other consumer goods throughout the economy. What is particularly hypocritical is that many, if not most, members of the General Assembly, Democrats and Republicans, clearly understand this principle and, in invoking it, have rightfully argued in favor of extending the state sales tax to services like haircuts and lawyers. At the present time, it applies only to tangible goods. However, there seems to be no movement to block the new e-cigarette excise tax on these same grounds.
The neutrality principle also flows directly from a concern for individual liberty. In a free society, it is not the role of government to influence personal decision-making.
Since the e-cigarette tax is projected to generate a trivial $5 million in new revenues, it is unlikely that this proposal is primarily about the money. This suggests that, for reasons I will not speculate about here, its primary purpose is to discourage the use of e-cigarettes. In other words, it is a deliberate attempt to use the state’s taxing authority to thwart free decision-making.
