Vape Taxes Aren’t the Answer for Medicaid Expansion

In the 2020 primary election, Oklahomans told the Legislature that we want a robust, stably-funded health care system. To make this goal of safeguarding Oklahomans’ health a reality, the Legislature has a number of options for funding Medicaid. Anti-vaping advocates have been exploring a tax on vaping products as a possible funding source. While there are arguments to pass a vape tax as a public health measure, it would likely be an insufficient and unstable way to fund a public program as crucial to our health as Medicaid.

Vaping tax revenue is hard to predict and may not be adequate to fund services we need

One of the first problems with assessing how much revenue a vape tax would generate is that actual revenue data on states’ current vape taxes are scarce as many of these taxes were enacted within the last two years. Revenue generated would also vary by how exactly the tax is designed, such as whether it taxes the wholesale value of all vape products or just the liquid vaporized by the devices. Using other states’ revenue estimates from the table below as a guide, we estimate that a vape tax could bring in anywhere from $1.7 to $26.4 million annually. Other sources find that vape taxes usually net between $1 to $10 million per year. Compared to the likely cost of Medicaid expansion ($117 to $164 million), it seems highly unlikely that taxing vape products would generate enough revenue to cover the health care that Oklahomans need.

State Tax Structure Revenue Revenue Estimate Adjusted by Oklahoma population

California

59.27% wholesale

$34 million (but actual revenue could vary wildly)

$3.4 million

Illinois

15% wholesale

$15 million

$4.7 million

Kansas

$0.05/mL sales tax

$2.6 million

$3.5 million

Kentucky

15% of wholesale and $1.50/cartridge sales tax

$15.9 million

$14.1 million

Minnesota

95% wholesale

$11.5 million

$8.1 million

Nevada

12.5% wholesale open, $0.50 closed

$8 million

$10.3 million

New Mexico

12.5% wholesale open systems, $0.50/cartridge on closed systems

$14 million

$26.4 million

New York

20% wholesale

$19 million

$3.9 million

North Carolina

$0.05/mL sales tax

$4.5 million

$1.7 million

Pennsylvania

40% wholesale

$13.7 million

$4.2 million

Utah

56% wholesale

$20 million

$24.7 million

Vermont

92% wholesale

$3.5 million

$22.2 million

Virginia

$0.066/mL sales tax

$15-20 million

~$7-$9.25 million

Washington

$0.09/mL open, $0.27 closed, both sales tax

$19.1 million

$10 million

Wisconsin

$0.05/mL sales tax

$3 million

$2.1 million

*Bolded revenue indicates actual collected revenue with all others being projected revenue

**Taxes can differ based on whether the product is part of a “closed” or “open” system. Closed-system vapes are sold with the juice already inside the vaping device and do not allow for user refills. Open systems indicate that the vaping device and its contents are sold separately, and the device may be refilled by the user.

Vape taxes are likely regressive and are not stable revenue sources

While a vape tax would not bring in much revenue, the money it generates would likely be disproportionately taken from those who have the least ability to pay. Oklahoma’s tax structure is already highly regressive, with low-income Oklahomans paying more than twice the share of their income than wealthy Oklahomans. Taxing vape products would put additional strain on an already over-taxed segment of our community. Having a well-funded healthcare system is crucial for many Oklahomans, but our lowest-income families should not fund it. 

Many public health advocates point out that further taxing vape products would drive down the use of these products. Even if a vape tax’s public health advantages outweighed its small revenue and regressivity, tying Medicaid expansion funding to a vape tax would be betting our health on a losing horse. The core idea behind “sin” taxes,  such as the taxes levied on cigarettes and alcohol, is to prevent people from purchasing them. This means that the more successful a sin tax is, the less money it brings in. Neatly summarizing sin taxes’ purpose and why they make a poor revenue source, former New York City Mayor Mike Bloomberg once said, “If it were totally up to me, I would raise the cigarette tax so high the revenues from it would go to zero.” Any source of Medicaid funding must be sustainable, and using a vape tax as a fiscal solution would—if the tax works as intended—be tying Oklahomans’ health care to a sinking financial ship. 

Vape taxes could be a useful solution for a public health crisis

Budgetary concerns aside, there are valid reasons for implementing a vape tax. There is evidence to suggest that vape taxes are successful in preventing people from vaping, particularly young people. Given what we don’t know about the long-term effects of vaping—and what we do know—preventing a young person from vaping could save them from serious health conditions later in life. Studies examining anti-smoking campaigns suggest that this prevention could even be good for Oklahoma’s long-term budget, sparing us from the future costs of vaping-related illnesses and hospitalizations. From a public health standpoint, it makes sense to discourage people from vaping, and taxes on vaping products are a proven way to accomplish this.

 

Regardless of health benefits, vape taxes are a bad solution for Medicaid funding

Any funding sources for expansion must be sufficient and stable, and there are other funding options that meet those requirements. The Legislature could slash tax expenditures, which would generate hundreds of millions in funding, or retain and increase fees levied on healthcare providers and insurance plans. A vape tax, unlike these plans, would be insufficient, unstable, and funded on the backs of our most vulnerable community members. For a strong Medicaid system, a tax on vaping is the wrong choice for funding Oklahoma’s Medicaid expansion.

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About the Author

Josie Phillips is a summer policy intern for OK Policy. She graduated from the University of Oklahoma with a double major in Economics and International & Area Studies. She is an alumna of OK Policy’s Summer Policy Institute.

ABOUT THE AUTHOR

Oklahoma Policy Insititute (OK Policy) advances equitable and fiscally responsible policies that expand opportunity for all Oklahomans through non-partisan research, analysis, and advocacy.

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