In last week’s newsletter, I discussed a new tax on e-cigarettes that was passed by the NC House as part of an omnibus tax bill meant to make adjustments to last year’s tax reforms. At the time, the bill, including the new tax, was about to be considered by the Senate. My hope was that the Senate, given its reputation for adherence to sound/conservative principles of taxation, would pull this brand new tax from the omnibus bill and, in the name of government transparency, have it considered outside of the shroud of this all encompassing legislation.
Unfortunately my hopes were dashed, and politics won out over principle. On Wednesday, largely at the behest of the tobacco company, Reynolds America, who clearly stands to benefit from having a new tax placed on its up and coming competition, the Senate voted for the omnibus bill, including the punitive tax on people who use e-cigarettes. So, while the omnibus bill, overall, does not raise taxes — which is how Senators could get away with voting for it without technically violating any pledges that they made not to raise taxes — it clearly does increase taxes on a politically impotent segment of our citizenry: e-cigarette smokers. And it does this with no real justification in either the economics or ethics of taxation. As noted in last week’s newsletter, the new tax violates all of the most important principles of sound taxation — principles invoked by many of these same Republican legislators in last year’s debates over tax reform.
But what is even more disheartening is that, when offered a chance via an amendment proposed by Democratic Senator Ben Clark to reduce the tax from 5 cents a milliliter of total liquid used in the cigarettes to 3 cents, the Republicans in the Senate voted unanimously against the cut. That’s right, a cut in a tax that has no economic or moral justification and that violates principles of taxation that conservatives purport to hold dear was defeated with a unanimous vote from Republicans. Furthermore, it cannot seriously be argued that they voted this way because it would have reduced revenues necessary to balance the budget. The fact is that, even at the full 5 cents, the tax is only projected to generate $5 million out of a $21 billion budget. It is hard to color this in any way other than as a vote meant to appease a well-heeled special interest.
Over the last 10 days, as I have been writing about this issue, I have heard several arguments from Republicans and even from movement conservatives in support of this new tax. These arguments strike me as nothing more than floundering for an excuse.
One that I have heard quite a bit is that the tax is ultimately inevitable because e-cigarettes are actually tobacco products. Nicotine in the liquid is extracted from tobacco. But the fact is that other states are not seeing it that way. North Carolina is only the second state to implement an e-cigarette tax. Many other states, including states as diverse as South Carolina and Massachusetts, have voted it down. The only other state to pass an e-cig tax is Minnesota. But even if it were inevitable, whatever that might mean, why couldn’t North Carolina be the 50th state to enact it rather than the 2nd? After all, a major hurricane hitting North Carolina or a new eruption of Mount Vesuvius might be inevitable, but most of us would prefer that those events occur later rather than sooner.
I have also heard the rather silly argument that the only reason other states have not acted is that they are waiting to see what North Carolina does. While I find it difficult to believe that the Massachusetts state legislature rejected the tax because they wanted to see what North Carolina would do first, let’s assume that that "argument" is true. From a conservative perspective, wouldn’t it then make sense to do nothing? Just think, the NC legislature could have stopped this whole tax nationwide by refusing to consider it.
Maybe the silliest of the silly arguments I’ve heard in favor of this tax has to do with fairness. If regular cigarettes face heavy excise taxes and e-cigarettes directly compete with tobacco cigarettes, then they both should face add-on excise taxes. Of course, if this idea is accepted, then nicotine gums and patches should also be subject to an add-on tax. They are not, and no one is suggesting that they should be. Carrying this analogy even further, perhaps there should be special taxes on near beer, or even grape juice, because both of these are seen by some people as substitutes for beer and wine, which face heavy regulations and special taxes.
The fact is that there is no reasonable excuse for this tax. But Republicans in the legislature do have a chance to redeem themselves. While in 2014 the NC General Assembly became the second state legislative body to impose an e-cigarette tax, in 2015 it could truly make history by becoming the first to repeal one.
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