Testimony before the New Mexico House Taxation and Revenue CommitteeRegarding Imposing an Excise Tax on Vapor Products

Chairman Lente, Vice-Chairwoman Cadena, and Members of the Committee:

Thank you for your time today to discuss imposing a tax on vapor products in New Mexico.

My name is Lindsey Stroud and I’m Director of the Consumer Center at the Taxpayers Protection Alliance (TPA). TPA is a non-profit, non-partisan organization dedicated to educating the public through the research, analysis and dissemination of information on the government’s effects on the economy. TPA’s Consumer Center focuses on providing up-to-date information on adult access to goods including alcohol, tobacco and vapor products, as well as regulatory policies that affect adult access to other consumer products, including harm reduction, technology, innovation, antitrust and privacy.

While addressing youth use of age-restricted products is laudable, lawmakers must refrain from imposing excise taxes products that adults responsibly consume, and which may help adults quit smoking. Youth use of traditional tobacco products has reached record lows, while youth vaping has halved in recent years. Excessive excise taxes will both confuse consumers over the harm of these products as well as force them to seek out illicit products from clandestine sources, which may cause more harm.

Key Points

• Youth vaping has decreased by 53 percent between 2019 and 2022, while youth use of traditional tobacco products is at record lows.
• In 2022, among middle and high school students that had used a tobacco or vape product on at least one occasion in the 30 days prior, 9.4 percent reported using e-cigarettes, 1.9 percent had used cigars, 1.6 percent has used combustible cigarettes and 1.3 percent had used smokeless tobacco products.
• According to the Center for Disease Control and Prevention’s Youth Risk Behavior Survey, vaping among U.S. high school students decreased by 45 percent, from 32.7 percent in 2019 to 18 percent in 2021.
• In 2021, 13.4 percent of New Mexico adults were currently smoking cigarettes. Nearly one-fourth (22.8 percent) of adults who earned $25,000 were currently smoking in 2021, compared to only 5.1 percent of adults earning $50,000 or more.
• In 2021, 7.3 percent of New Mexico adults reported past-month e-cigarette use, which was a 49 percent increase from 2017.
• In 2021, among all New Mexico adults, 18.7 percent of 18- to 24-year-olds, 10.6 percent of 25–44-year-olds, 3.6 percent of 55–64-year-olds, and 1.8 percent of adults aged 65 years or older were currently using e-cigarettes cigarettes.
• Among adults earning $25,000 or less, 8.7 percent reported current e-cigarette use, compared to 5.1 percent who reported earning $50,000 or more.
• Already-existing cigarette excise taxes in New Mexico disproportionately impact low-income persons, while failing to significantly reduce smoking rates among that class.
• The number of percent of New Mexico adults earning $25,000 or less that were smoking decreased by only one percent between 2019 and 2021, while the percent of adults earning $50,000 or more that were smoking decreased by 28.2 percent during the same period.
• Between 2007 and 2018, smoking rates among New Mexico adults aged 18 to 24 years old declined by 49.2 percent. Since 2018, young adult smoking rates have decreased another 42.5 percent, with average annual declines of 8.9 percent.
• New Mexico’s vaping industry created $93.1 million in economic activity in 2021 while generating 377 direct vaping-related jobs and contributed more than $4.8 million in state taxes.
• Unfortunately, anti-vaping efforts have reduced the industry’s economic impact. The number of employees decreased by 39.7 percent from 625 employees in 2018, state tax collections were down 29 percent from 2018’s $6.8 million, and overall economic activity was down by 19 percent from $115 million in 2018.
• An illicit market is thriving on internet marketplaces from New York City to California where certain e-cigarette products are banned.
• New Mexico woefully underfunds programs to prevent youth use of tobacco and/or vapor products and help adults quit smoking, while simultaneously receiving millions of dollars from the pockets of the adults who smoke. In 2021, for every $1 the state received in tobacco monies, it spent only $0.05 on tobacco control efforts.

Youth Tobacco and Vapor Product Use

Despite headlines, youth use of traditional tobacco products is at record lows, while youth e-cigarette use peaked in 2019 and has steadily declined in the years since.

In 2022, according to the National Youth Tobacco Survey (NYTS), among middle and high school students that had reported current tobacco product use (defined as having used the product on at least one occasion in the 30 days prior), 1.9 percent had used cigars, 1.6 percent had used combustible cigarettes and 1.3 percent had used smokeless tobacco products.[1] These are some of the lowest levels recorded. In fact, in the 10 years between 2012 and 2022, current cigar use declined by 75.3 percent, cigarette use by 81.7 percent and smokeless tobacco use by 67.9 percent. These declines have come all the while flavored tobacco and vapor products remain available for sale.

Regarding vaping use (according to the NYTS), vaping seems to have peaked in 2019 when 20 percent of middle and high school students had used an e-cigarette in the 30 days prior to the survey. In 2022, only 9.4 percent of U.S. youth were currently vaping, a 53 percent decrease from 2019’s levels.

Other national survey data has found significant declines in youth use of tobacco and vapor products. In 2022, according to the Monitoring the Future Survey (MTFS), among middle and high school students, 2.3 percent reported currently using smokeless tobacco, 2.2 percent reported current combustible cigarette use, and 1.4 percent reported using flavored little cigars.[2] Again, these are some of the lowest levels recorded. In 2012, more than one in ten U.S. youth (11 percent) reported current cigarette use. In ten years, smoking rates among U.S. youth declined by 78.7 percent. During the same period smokeless tobacco use among youth decreased by 59.6 percent. Between 2014 and 2022, the percent of youth reporting current use of flavored cigars declined by 81.2 percent.

Similar to the NYTS, the MTFS also found that youth vaping peaked in 2019, when 22.7 percent of U.S. youth reported “any vaping” – i.e., using a vapor product to vape either nicotine or other substances.  Between 2019 and 2022, the percent of youths reporting any vaping decreased by 23.9 percent.

The CDC continues to delay publishing state-specific data from the 2021 Youth Risk Behavior Survey (YRBS). However, nationally, only 18 percent of high school students reported using vapor products in the 30 days prior to the survey in 2021.[3] This is a 45 percent decrease from 2019 when 32.7 percent of high schoolers reported current vapor product use.

As the YRBS is an aggregate of all state data, New Mexico lawmakers should refrain from prohibitionist policies to address outdated figures on youth vapor product use in the state.

Adult Tobacco and Vape Use

In 2021, 13.4 percent of adults New Mexico were currently using cigarettes.^[4] Smoking rates were highest among 25- to 44-year-old adults, with 21.2 percent reporting current use.

In New Mexico, Multiracial, non-Hispanic adults reported smoking at a greater percentage of their identified race at 27.6 percent. This is compared to 14.1 percent of American Indian/Alaska Native adults, 13.6 percent of White adults and 12.7 percent of Hispanic adults.

Yet, Hispanic and White adults made up a significantly larger percentage of New Mexico’s total adult smoking population. In 2021, Hispanic adults and White adults accounted for 46.4 percent and 41.5 percent of the state’s current smoking population, respectively, compared to Multiracial, non-Hispanic adults who made up only three percent. American Indian/Alaska Native adults made up 9.1 percent of New Mexico’s adult smoking population in 2021.

The CDC provides data on adult e-cigarette use for only 2016, 2017, and 2021.

In 2021, among all New Mexico adults, 7.3 percent were currently using e-cigarettes. This is a 49 percent increase from 2017 when 4.9 percent of New Mexican adults were current e-cigarette users.

In 2021, among all New Mexico adults, 18.7 percent of 18- to 24-year-olds, 10.6 percent of 25–44-year-olds, 3.6 percent of 55–64-year-olds, and 1.8 percent of adults aged 65 years or older were currently using e-cigarettes cigarettes.

Among adults earning $25,000 or less, 8.7 percent reported current e-cigarette use, compared to 5.1 percent who reported earning $50,000 or more.

In New Mexico, 6.9 percent of White adults and nine percent of Hispanic adults were currently vaping in 2021. There is no data for other races.

Excise Taxes Burden Low Income New Mexico Adults

In 2021, among all New Mexico adults earning $25,000 annually or less in 2021, nearly one-fourth (22.8 percent) reported currently smoking, compared to only 7.4 percent of adults who earned $50,000 or more per year. Similarly, among adults earning $25,000 or less, 8.7 percent reported current e-cigarette use in 2021, compared to 5.1 percent who reported earning $50,000 or more.

New Mexico last increased its state cigarette excise tax in 2019 from $1.66 to $2.00-per-pack. Lawmakers often justify excise taxes on cigarettes to deter persons from using combustible cigarettes. These taxes not only disproportionately harm lower income adults, the taxes also fail to significantly reduce smoking rates among those persons.

The number of percent of New Mexico adults earning $25,000 or less that were smoking decreased by only one percent between 2019 and 2021, while the percent of adults earning $50,000 or more decreased by 28.2 percent during the same period.

Lawmakers should refrain from enacting further increases in cigarette taxes given their disproportionate effect on low-income persons, while failing to reduce smoking rates.

Young Adult Smoking Rates

As e-cigarettes have disrupted the traditional tobacco market, policymakers have shifted their attention towards youth use and subsequent smoking initiation. Despite the rhetoric, the introduction of e-cigarettes has not led to increases in young adult cigarette smoking, but rather, correlates with significant declines.

E-cigarettes first came to U.S. market in 2007 when 23.6 percent of New Mexicans aged 18 to 24 years old were currently smoking. In 2018, public health purported to a so-called “youth vaping epidemic,” when 12 percent of young adults in the Land of Enchantment were smoking. Between 2007 and 2018, young adult smoking rates declined by 49.2 percent. Further, since 2018, young adult smoking rates have decreased another 42.5 percent, with average annual declines of 8.9 percent.

Though data is limited to only three years, increases in vaping correlate with decreases in smoking.

In 2017 (among 18- to 24-year-olds) 13.9 percent and 12 percent were currently using combustible cigarettes and e-cigarettes, respectively. Between 2017 and 2021, current cigarette use among young adults decreased by 50.4 percent while vapor product use increased by 55.8 percent.

Given the epic lows in young adult smoking rates, lawmakers must refrain from policies that restrict access to alternatives to smoking.

Economic Impact of Vaping in New Mexico

In 2021, according to the analysis by the Vapor Technology Association, the industry created 377 direct vaping-related jobs in New Mexico. These jobs generated more than $11.2 million in wages.[5] Moreover, the industry has created hundreds of secondary jobs in the Land of Enchantment, bringing the total economic impact in 2021 to $93.1 million. In the same year, New Mexico received more than $4.8 million in state taxes attributable to the vaping industry.

Unfortunately, efforts by anti-vaping organizations and policymakers have negatively affected vape shops in the Land of Enchantment. The number of employees has decreased by 39.7 percent from 625 in 2018 to 377 in 2021, representing a loss of $4.7 million in wages.[6] Further, state tax collections in 2021 were down 29 percent from 2018’s level of $6.8 million. Overall, the economic output from the vaping industry in New Mexico was reduced from $115 million in 2018 to $93.1 million in 2021, a 19 percent decrease.

In Thriving Illicit Market, Unregulated Products Harm Users

Excessive taxes on vapor products only punish responsible retailers while incentivizing clandestine actors to engage in new illicit marketplaces. Unregulated tobacco and vapor products pose a risk to all consumers, both youth and adults alike. Nonetheless, consumers have indicated they would seek out illicit products should their product of choice be banned, and there are already rogue sellers using online marketplaces to sell these unregulated products.

One study examining a possible menthol ban found that at least 25 percent would “find a way to buy a menthol brand.”[7] An experiment which examined current e-cigarette users under a hypothetical flavor ban found that banning “vaping products from the marketplace may shift preference towards purchasing vaping products in the illegal marketplace.”[8] An international survey of vapers from Canada, the United Kingdom and the United States found that over one-fourth (28.3 percent) “would find a way to get their banned flavor(s).”[9]

There is already a booming marketplace online. The examples are relatively easy to find. A Craigslist ad in New York City offers for sale a variety of flavored e-liquid products, from peach to cotton candy.[10] The seller informs the potential customer to “[i]nteract with [them] the same way [one] would a sales person.” Alarmingly, this seller is not interested in providing potential customers with information regarding the products that they may be consuming, noting that any questions about their “cost, date purchased, where purchased, why selling is no one’s concern.” In California, which recently enacted a ban on flavored tobacco and vapor products, “menthol man” is offering to deliver menthol cigarettes for $15 a pack.[11]

There is also an even larger international market of counterfeit vapor products, with officials in numerous countries attempting to stem their flow.

In January 2021, the FDA worked with other federal agencies and seized 42 shipments of counterfeit disposable vapor products from China.[12] In March 2021, Customs and Border Protection officers in Chicago seized $1.5 million in counterfeit vapes.[13]

In 2022, officials in Australia, China, Singapore and the United Kingdom have all reported massive seizures of counterfeit vapor products.[14] [15] [16] [17] The illicit products are so prevalent that a vapor product company has been actively working with government officials in China and has successfully shut down more than 20 factories manufacturing counterfeit vapes.[18]

Tobacco Monies

Each year, states receive millions of dollars borne out of the lungs of persons who smoke. This revenue includes excise cigarette taxes and settlement payments. Yet, each year, states spend miniscule amounts of tobacco-related monies on programs to help adults quit smoking and prevent youth use.

In 2021, the Land of Enchantment collected $80.6 million in state excise tax revenue from combustible cigarettes. This was a one percent increase from 2020’s $79.8 million Between 2000 and 2021, New Mexico collected more than $1.4 billion in cigarette taxes.

Since 2000, New Mexico has collected annual payments from tobacco manufacturers based on the percentage of cigarettes and tobacco products sold in the state in that year. New Mexico collected $36.3 million in settlement payments in 2021, a 7.1 percent increase from 2020’s $33.9 million. Since 2000, the Land of Enchantment collected nearly $828.2 million in tobacco settlement payments.

While New Mexico collected an estimated $116.9 million in tobacco-related monies in 2021, the state allocated only $5.5 million in state funding towards tobacco control programs, including cessation, education, and youth prevention efforts, which was a 0 percent change in funding from 2020 levels. This amounts to 6.8 percent of taxes and 15.2 percent of settlement payments. In 2021, for every $1 the state received in tobacco monies, it spent only $0.05 on tobacco control efforts.

Conclusion

Lawmakers must refrain from excessive excise taxes that will only drive adult consumers to an underground market, exposing users to possibly harmful, unregulated products. Given the significant reductions in youth use of e-cigarettes, excise taxes are not necessary to deter youth use. Rather, policymakers should use more of the already-existing monies derived from cigarettes to prevent youth use and help adults quit.

[1] Eunice Park-Lee, et al., “Tobacco Product Use Among Middle and High School Students — United States, 2022,” Morbidity & Mortality Weekly Report, Centers for Disease Control and Prevention, November 11, 2022, https://www.cdc.gov/mmwr/volumes/71/wr/mm7145a1.htm?s_cid=mm7145a1_w.

[2] University of Michigan, “1975-2022 Data for In-School Surveys of 8th, 10th, and 12th Grade Students,” Monitoring the Future, 2022, https://monitoringthefuture.org/results/data-products/tables-and-figures/.

[3] Centers for Disease Control and Prevention, “Youth Risk Behavior Survey Data Summary & Trends Report,” February 13, 2023, https://www.cdc.gov/healthyyouth/data/yrbs/pdf/YRBS_Data-Summary-Trends_Report2023_508.pdf.

[4] Centers for Disease Control and Prevention, “Behavioral Risk Factor Surveillance System,” 2022, https://www.cdc.gov/brfss/brfssprevalence/. Accessed December 2022.

[5] Vapor Technology Association, “The Economic Impact of the Vapor Industry New Mexico,” 2021, https://vta.guerrillaeconomics.net/reports/0c57a9f5-047d-41ce-a4eb-0e10f00e7fdf?.

[6] Vapor Technology Association, “The Economic Impact of the Vapor Industry New Mexico,” 2018, https://vta.guerrillaeconomics.net/reports/106ffdeb-6839-4cdc-a426-df25ed0a1b04?.

[7] Richard J. O’Connor et al., “What would menthol smokers do if menthol in cigarettes were banned? Behavioral intentions and simulated demand,” Addiction, April 4, 2012, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3370153/.

[8] Roberta Freitas-Lemos et al., “The Illegal Experimental Tobacco Marketplace I: Effects of Vaping Product Bans,” Nicotine & Tobacco Research, October 23, 2021, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8403238/.

[9] Shannon Gravely et al., “Responses to potential nicotine vaping product flavor restrictions among regular vapers using non-tobacco flavors: Findings from the 2020 ITC Smoking and Vaping Survey in Canada, England and the United States,” Addictive Behaviors, October 14, 2021, https://pubmed.ncbi.nlm.nih.gov/34695685/.

[10] Craigslist, “Atmos No Nicotine E-liquid 12ml – $5 (Chelsea),” https://web.archive.org/web/20230125180105/https:/newyork.craigslist.org/mnh/for/d/new-york-atmos-no-nicotine-liquid-12ml/7577982709.html. Accessed January 2023.

[11] Craigslist, “menthol man delivery service (Sacremento),” https://web.archive.org/web/20230125181307/https:/sacramento.craigslist.org/bar/d/sacramento-menthol-man-delivery-service/7577129096.html. Accessed January 2023.

[12] U.S. Food and Drug Administration, “CBP, FDA Seize Counterfeit, Unauthorized E-Cigarettes,” January 13, 2021, https://www.fda.gov/news-events/press-announcements/cbp-fda-seize-counterfeit-unauthorized-e-cigarettes.

[13] U.S. Customs and Border Protection, “CBP Officers in Chicago Capture $1.5 Million in Counterfeit Vaping Pens,” March 11, 2021, https://www.cbp.gov/newsroom/local-media-release/cbp-officers-chicago-capture-15-million-counterfeit-vaping-pens.

[14] Mary Ward, “More than $2 million worth of vapes seized in state health crackdown,” The Sydney Morning Herald, February 14, 2022, https://www.smh.com.au/national/nsw/more-than-2-million-worth-of-vapes-seized-in-state-health-crackdown-20220128-p59s0m.html.

[15] Diana Caruana, “Hong Kong Customs Seize Thousands of Vape Products Worth a Total of HK$10 Million,” Vaping Post, June 6, 2022, https://www.vapingpost.com/2022/06/06/hong-kong-customs-seize-thousands-of-vape-products-worth-a-total-of-hk10-million/.

[16] Vapor Voice, “Singapore Seizes Nearly $1 Million in Illegal Vapes,” June 2, 2022, https://vaporvoice.net/2022/06/02/singapore-seizes-nearly-1-million-in-illegal-vapes/?utm_source=rss&utm_medium=rss&utm_campaign=singapore-seizes-nearly-1-million-in-illegal-vapes.

[17] Charlotte Lillywhite, “Massive £100k shipment of dodgy vapes seized near Heathrow Airport,” MyLondon, August 9, 2022, https://www.mylondon.news/news/west-london-news/massive-100k-shipment-dodgy-vapes-24708471.

[18] Kiran Paul, “Elf Bar helps close 20 counterfeit factories in China, seizing million fake vapes,” Asian Trader, July 15, 2022, https://www.asiantrader.biz/elf-bar-helps-close-down-20-counterfeit-factories-in-china-seizing-over-a-million-fakes/.