E-Cigarettes the New Target for Gov. Kasich in Ohio

Michi Iljazi

June 20, 2014

Recently, TPA wrote about the ridiculous tax increase offered by Gov. Chris Christie on e-cigarettes (click here).  This week we continue the series with Ohio, where Republican Governor John Kasich has proposed new taxes on E-Cigarettes. One of the motivating factors for this is that revenue from traditional cigarette taxes is declining. The Taxpayers Protection Alliance has written extensively about how estimated tax revenue from tobacco taxes never materialize (file that under: we told you so!).  This type of phenomenon, that TPA calls “Fool’s Gold,” can be seen in several states, and internationally.

The Ohio proposal is a part of the Governor’s Mid-Biennium Review (MBR) and Will Upton with Americans for Tax Reform detailed the specific pieces where Kasich is aiming for tobacco and e-cigarettes:

Over a two year period Ohio’s tax on cigarettes would increase from $1.25 to $1.85 a pack. This tax increase will be borne primarily by lower-income earners. Even more important, tobacco taxes have repeatedly proven to be a declining source of revenue and an inadequate pay-for for permanent income tax reductions… Along the same lines of the proposed tobacco tax increase, Gov. Kasich has proposed an equivalent tax on e-cigarette and vapor products.  Currently, under Ohio law, these products are not taxed in the same manner as tobacco products.

The simple fact is that selectively targeting products and industries with tax increases eventually drives consumers out of the market, eventually harming businesses and taxpayers. If prior examples are any indication of what to expect, the revenue generated will not hold up and will not solve the problems that the state may have in filling their budgetary gaps and priorities in the future unless taxes are increased. This would perpetuate an endless cycle of tax increases, which could lead to increased smuggling. The problems here are endless: discriminatory tax policy, short-term revenue stream, ongoing tax increases, and possibly incentivizing illicit trade.

The State Assembly is out of session until later this year, so the good news is that there may be time to stop any action regarding taxes on E-Cigarettes before they become a reality. However, what Gov. Kasich should be doing is cutting spending rather than raise any taxes. Failed programs like Connect Akron, a municipal broadband initiative that cost local taxpayers $800,000, is a prime example. Gov. Kasich should be looking for ways to save taxpayers in Ohio money before it’s too late, as was the case with Connect Akron and the Lebanon telecommunications system (which left the city in debt nearly $10 million after the revenue projections failed).  Taxpayers shouldn’t have to pay the government more to fund failed public programs, Governors should get rid of those programs before they end up costing the taxpayers even more.

Gov. Kasich is going down a very dangerous road with this tax increase.   To ensure a stable financial for all Ohioans, Gov. Kasich needs to drop the tax increase and address the real problem in Ohio, runaway spending.  Any government shortfall in Ohio should be on the back of failed and/or bloated government programs not taxpayers.