Cigarette Tax Receipts Unaffected by E-Cig Entry

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By Martina Barash

Sept. 16 — Electronic cigarettes aren't having a discernable effect on the market for conventional cigarettes, judging by one yardstick of conventional-cigarette use, a government report says.

That measure—revenue from federal excise taxes on cigarettes—has remained on a steady, slightly downward trajectory since April 2009, when the taxes were last raised, the Government Accountability Office said in a report released Sept. 14. The rate hasn't decreased from this baseline trend despite the rise in e-cigarette use during that time, the GAO said.

The relatively small size of the e-cigarette market—an estimated $2.5 billion compared with $80 billion for combustible cigarettes in 2014—may be one factor accounting for e-cigarettes' failure to budge federal excise tax (FET) revenues from cigarettes.

Data Vacuum 

Federal agencies don't currently collect data on e-cigarette quantities and prices, the GAO said in response to an additional query from the Senate Committee on Finance.

The Treasury Department can't collect data on e-cigarettes unless they “contain tobacco,” and the Food and Drug Administration can only begin collecting information on them when its “deeming rule” becomes effective, according to the report.

That rule, to deem e-cigarettes and certain other products “tobacco products” under the agency's purview, was proposed in April 2014 but hasn't yet become final.

The Bureau of Labor Statistics began tracking the prices of some e-cigarettes over time in September 2014 for use in compiling the Consumer Price Index—but it only tracked 10 e-cigarette products as of June 2015 and will only re-check prices on those samples after a four-year period, the report said.

Some private companies collect point-of sale information on e-cigarettes at traditional retail stores, but those sales are predominantly of disposable e-cigarettes, the report said. Refillable e-cigarettes are more apt to be sold online or at “vaping” stores, it said.

Substitution? New Users?

“How consumers’ use of e-cigarettes relates to their use of cigarettes—whether e-cigarettes are substitutes, complements, or unrelated—may determine any effect of e-cigarette use on cigarette FET revenue,” the GAO said, pointing to another possible factor in the results showing no deviation from the baseline trend.

“If users consume e-cigarettes instead of cigarettes, cigarette FET revenue would decline as fewer cigarettes are consumed,” the report said.

But if the use of each product is independent of the other's use, or users are different, there wouldn't be an effect on revenue, the report said.

The relationship between e-cigarette and conventional-cigarette use “is currently unknown,” the report said. The FDA and Centers for Disease Control and Prevention are working to understand that relationship, the report said.

“The most recent data from the National Youth Tobacco Survey by CDC and FDA showing high school students’ increasing use of e-cigarettes and decreasing use of cigarettes,” the report said, “suggest that cigarette FET revenue could decline further if these trends continue.” The report referred to an April 2015 study showing that electronic cigarettes and hookahs appear to be displacing traditional tobacco products among middle and high school students. 

To contact the reporter on this story: Martina S. Barash in Washington at

To contact the editor responsible for this story: Jeffrey D. Koelemay at

The report is available at

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