An opportunity for health

David Sweanor shares his thoughts on the taxation of next-generation products

David T. Sweanor is an adjunct professor in the faculty of law at the University of Ottawa in Canada. As a public health advocate, he has worked at reducing global cigarette smoking since 1983. Tobacco Reporter asked Sweanor for his views on the taxation of next-generation products.

Tobacco Reporter: The scientific community agrees that the method of nicotine delivery, rather than the nicotine itself, is the culprit with regard to smoking-related diseases, with tobacco combustion carrying the greatest risk. In The New England Journal of Medicine, you argued that taxing products according to their risk level would maximize incentives for tobacco users to switch to less harmful products. Where on the risk continuum do you see taxes on e-cigarettes?

Sweanor: The goal of public health—not to be confused with those with other agendas claiming to be advocating public health—is the reduction of death, diseases and disability. Where we find risks, we seek to reduce them. Prices impact consumption, and differential prices shape choices. The bigger the price differential, the greater the shift between substitutable goods.

Anything other than a zero rate of tax on alternatives to cigarettes will result in less incentive to switch, both because of price differentials not being as great and because of the implicit message about the risk differential not being as significant. I would recommend no tax on most noncombustibles and a higher tax on combustibles as the most sensible starting point.

Some argue that there need to be taxes on noncombustibles to prevent use by nonsmoking youth. But that means accepting a theoretical and preventable long-term health concern taking precedence over the virtual certainty of greater consumption of cigarettes and the resulting diseases in the immediate future. We should prefer alternatives that protect youth without imperiling the lives of their parents.

What about nicotine-free e-liquids, which are currently also taxed? Does this make sense?

It doesn’t. It is like identifying someone who gave up excessive drinking for jogging and deciding to tax her running shoes.

Where on such a differentiated tax scale would tobacco-heating products come in?

The key thing from a public health perspective is to get people off combustion-based delivery. At this point, discussion about the relative risks of vaping, heat-not-burn, snus, pharmaceutical nicotine, etc., and the potential taxes for each category misses that key point. It is like arguing about whether it is more dangerous to juggle oranges or apples or coconuts when people are currently juggling live hand grenades. The priority needs to be on replacing the truly deadly activity by offering a wide range of low-risk options, and we can discuss the relative merits of those alternatives later.

While, in the EU states that tax e-cigarettes, a trend is emerging toward taxation on the basis of e-liquid volume, there is no unified policy on taxing e-cigarettes in the U.S. Some states and counties have opted to group e-cigarettes or liquid containing nicotine in the same tax category as “other tobacco products” that only have the wholesale price as a common taxable base. In the case of Pennsylvania, this has led to e-cigarettes being taxed based on the wholesale price, inclusive of the liquid and devices. What should be the taxable basis for e-cigarettes?

E-cigarettes should not be subjected to excise taxes. Such taxes discourage switching from cigarettes and create compliance issues that disadvantage smaller suppliers, thus harming innovation and protecting the cigarette market. The Pennsylvania tax was a gift to the cigarette trade and would be the equivalent of the state putting a massive tax on clean water when rancid water is readily available and widely used.

The EU is presently reviewing the rates and structures of excise duty applied to manufactured tobacco and for the first time plans to include vapor products in its tax regime. In the U.S., the hopes of vapers are on the new FDA commissioner, Scott Gottlieb. What’s your advice for them regarding taxation of next-generation tobacco products?

Put a sign on your wall saying, “It’s the smoke, stupid,” and read it every day. We have an extraordinary opportunity to make one of the greatest-ever breakthroughs in public health by simply giving viable low-risk alternatives to the repeated inhalation of the products of combustion. Keep your eye on the prize. Don’t fail a “vision test.”

Recent attempts at taxation of vapor products—such as those in California, which no longer differentiates between combustible cigarettes and e-cigarettes—seek to prevent people from switching to e-cigarettes. Obviously, the idea of a risk continuum isn’t plausible to Californian fiscal policymakers, and they are only some among many who think that way. What would be a suitable strategy to convince such fiscal lawmakers of a differential tax strategy?

Efforts to “prevent switching”—and campaigners for such measures are usually open about that being their goal—are ideologically driven abstinence-only measures. They have been tried on a wide range of issues where there is an absolutist rather than public-health orientation. One need only look at prohibitionist policies on alcoholic beverages, the war on drugs, sex outside of heterosexual marriage, etc., to see the same sort of thinking, the same sorts of harm to health and human rights, and, ultimately, the same abject failure. What is surprising is that ideologues could have pushed through such policies in a place like California despite the presence of very effective advocates there who successfully battled such policies in dealing with AIDS and, lately, drug policies.

Public Health England was the first health authority to make an official and clear statement about the reduced harm potential of vapor products. How much could more such statements contribute to appropriate legislation and ultimately help answer the question of appropriate taxation of vapor products?

The U.K. has long been a global leader in pursuing pragmatic strategies to deal with public health issues. Given the history of alcohol, birth control, illicit drugs, workplace safety, etc., it is encouraging but not surprising to see U.K. leadership on nicotine issues. In other jurisdictions, it is often a small group of people with absolutist ideologies who impede progress in reducing risks. As with Wayne Wheeler of the Anti-Saloon League, they are energetic, loud, often very nasty, and wrong.

Cigarette manufacturers, such as Philip Morris International (PMI), claim they want to design a smoke-free future. What role do tax-based price differentiations play in stimulating the market for reduced-risk products and eventually, perhaps, achieving PMI’s goal?

Differential pricing is huge, and decisions on taxation shape those differentials. As evolving technology allows the noncombustion products to get ever more acceptable to smokers, price will play a huge role in shaping the market. Tax policy can literally stop a global pandemic of cigarette-caused disease. Finance officials around the world can play a huge role in doing what D.A. Henderson did to smallpox, or Norman Borlaug to reduce famine, and should be no less honored for making it happen.—S.R.