The Baptists and Bootleggers theory of political economy is once again demonstrating its explanatory power: this time with e-cigarettes.
This theory goes back to the days when both Baptists and bootleggers were both in favor of Prohibition. Baptists thought drinking was a social ill. Bootleggers liked tough regulations on legalized drinking because it was good for their profits. Therefore, both Baptists and bootleggers teamed up to keep many onerous Prohibition regulations in place. This history is repeating itself with another product, e-cigarettes: some in the legislature want to increase taxes and regulations on e-cigarettes, and others are demonstrating self-interest.
The bootleggers this time are Arkansas legislators and bureaucrats. The Baptists are anti-smoking activists.
HB 1156, currently in the House Rules Committee, would add new taxes and regulations to the burgeoning e-cigarette industry in Arkansas.
From Americans For Prosperity on HB 1156:
HB1156, filed by Rep. Charles Blake, would create a roughly $1.5 million new tax that would apply to Arkansans who use E-cigarettes and vaporizers as tobacco-free alternatives to smoking. We oppose this bill for several reasons.
First of all, HB1156 represents a new tax on Arkansas small business in an industry that is growing rapidly and adding more jobs to our state. For example, there have been 60 new vaporizer shops in Arkansas since 2013 and those shops have added 180 jobs in the last 18 months. This new tax could stunt that economic growth. Secondly, this bill is filled with red tape and regulations that create a new layer of licensing and permitting that will further impede small business owners from doing their job.
But some bureaucrats aren’t satisfied with just taxing and regulating the industry. They’re actually trying to ban e-cigarette usage altogether.
Arkansas State University did just that in February.
ASU’s spokesman said the ban was “better for the campus environment.” Whatever that means.
What’s funny about bureaucrats and public officials rushing to ban and regulate e-cigarettes in Arkansas is that studies have shown that it’s a much safer alternative to traditional cigarette smoking. As Jacob Sullum, a Reason columnist, recently noted, “anyone who implies that e-cigarette vapor is about as dangerous as tobacco smoke cannot be taken seriously.”
So why are nanny staters opposing E-cigarettes? Spoiler alert: taxes.
Local, state, and federal governments make a lot of tax revenue from traditional tobacco products.
While bureaucrats say they’re interested in citizens’ health and safety when adding new regulations and taxes or outright banning E-cigarettes, they’re also really concerned that these news products might lead to a decline in usage of traditional tobacco products.
From a recent article in cspnet.com:
It’s a fact that may be shocking: Federal, state and local governments make more money off tobacco sales than actual tobacco companies, thanks to Master Settlement Agreement payments and taxes.
“The government is the biggest player in the tobacco industry because they get around $40 billion annually from tobacco,” Conley said. “The tobacco industry, meanwhile, nets only $9 billion in profits. So the state and federal governments have a huge role in not seeing cigarette sales decline.”
Wells Fargo senior tobacco analyst Bonnie Herzog credits sales of e-vapor for roughly 1.5 percentage points worth of cigarette declines over the past few years. It’s a relatively small number that’s not giving many legislatures pause—yet.
“We’re going to see continued cigarette sales decline,” said Conley. “I think we are going to see governments be more transparent. Instead of making the public-health argument, they’re just going to start saying they need that tobacco (tax) money.”
It looks like government officials aren’t cracking down on e-cigarettes just because they’re concerned about public health. They’re cracking down because more e-cigarette usage is already leading to a decline in traditional tobacco usage — which is already taxed heavily. We realize there is a role for government regulation in public health and safety. However, regulation shouldn’t be used just to keep the tobacco tax revenue flowing.