Externalities of the California Tobacco Tax

Lauded as a major win for anti-smoking advocates, California's Proposition 56 raises state taxes on a pack of cigarettes by $2.00. Less noted by the measure's promoters, 56 also contained an "equivalent tax" for other tobacco products, which were redefined to include electronic cigarettes. This provision effectively makes California the seventh state to tax e-cigarettes and enacts a large and entirely new fee on these products.

Ironically, this could have the opposite effect of the measure's stated intent of "reducing smoking and tobacco use among all Californians." While estimates vary as to the overall costs of e-cigarettes to their traditional combustable counterparts, it's undeniable that a significant percentage of e-cigarette users have chosen the product because of the perceived health benefits. Indeed, the UK's Royal College of Physicians has encouraged the promotion of e-cigarettes as an alternative to smoked tobacco citing their "significant health gains."

As Prop 56's new tobacco and e-cigarette taxes take effect, consumers will see hikes in the overall costs of both products. The comparative jump of e-cigarette costs makes it less likely that consumers will see them as a viable alternative--especially, if customers are already reluctant to make the switch to e-cigarettes after so many years of loyalty to a specific brand or product. If the early science relative to e-cigarettes is true, this tax will have a negative impact on the health of the community that is trying to curb use of the very products targeted by this legislation.

Prop 56's success with voters is sure to spark copycat legislation in other states. Voters should keep the external effects of these taxes in mind when deciding on future legislation.