Harry’s blog 61: The shiny blue moon of Kentucky
Because of the dominance of the tobacco economy in the state, Kentucky has not exactly covered itself in glory regarding tobacco control. You can smoke where you like (apart from in government buildings and schools); it has higher-than-national average adult smoking prevalence; it positions tobacco at the lower end of the tax bracket compared with other states; and until 1990 it set no minimum age for tobacco sales.
However, the bluegrass state is leading the charge in determining that tobacco taxation should be assessed on risk, a possible global first. In May, the Kentucky legislature passed a tax reform bill that increased cigarette excise taxes from $0.60 to $1.10, while leaving taxes on smokeless products unchanged with no excise tax at all on e-cigarettes. This was in line with the tax regime proposed by Kentucky University’s Brad Rodhu and his colleague Nantaporn Plurphanswat.
The new law also contains a provision for reduced taxes on products that achieve Modified Risk Tobacco Product (MRTP) status from the FDA. But note that, as of April, the FDA has accepted no applications for MRTP status and has denied 18 applications. All applications for MRTP status to date have been for snus products, except for a single application for iQOS. That Swedish Match’s snus application ran to 135,000 pages might have been somewhat off-putting.
But back to Kentucky, and the General Assembly’s recognition that “Increasing taxes on tobacco products should reduce consumption, and therefore result in healthier lifestyles for Kentuckians. The relative taxes on tobacco products proposed in this section reflect the growing data from scientific studies suggesting that although smokeless tobacco poses some risks, those health risks are significantly less than the risks posed by other forms of tobacco products. Moreover, the General Assembly acknowledges that some in the public health community recognize that tobacco harm reduction should be a complementary public health strategy regarding tobacco products. Taxing tobacco products according to relative risk is a rational tax policy and may well serve the public health goal of reducing smoking-related mortality and morbidity and lowering health care costs associated with tobacco-related disease”.
Frank Chaloupka, David Sweanor, and Ken Warner published an early paper on the subject of the differential taxation of nicotine products. The prevailing view is that, as all tobacco products are equally dangerous, they should all be subject to the same level of taxation. But while this was always hugely contestable regarding smokeless products like snus, the global take-off of e-cigarettes, and the attendant scientific evidence of significantly reduced risk, highlights the need for a tax rethink.
The authors note that higher tobacco taxes can help promote quitting among current users, deter initiation among potential users and reduce tobacco use among continuing users. But as part of a pragmatic tobacco control policy, subjecting far less risky products to far less, or even no tax, has to be a no-brainer. Unless of course, your goal is “A nicotine free world. We can do it”.
You have to play smart with this; tax cigarettes high to encourage switching, and tax SNP low to help that process, but high enough to discourage use by minors. Attempts have been made at risk-related tobacco taxation when it was thought that lower-tar cigarettes were actually safer. Cue Homer Simpson ‘Doh’ moment. However, the independent science around e-cigarettes is far more robust.
As we know, e-cigarettes have been a technological game-changer, disrupting the tobacco industry, public health and tobacco control paradigms. The idea of costing similar products purely on the basis of a formally assessed risk is rare, let alone for the purpose of establishing a tax regime. Car insurance would be a costing example. A Porsche will cost more to insure than a basic Ford; the car is more powerful, able to exceed speed limits in seconds, likely to be driven by those less risk averse and will cost more in parts to repair. Alcohol tax tends to be beverage specific; the higher the percentage of alcohol, the higher the tax.
Tobacco pricing feels different. While somebody who drinks whisky is unlikely to switch to a low alcohol beer if the price goes up, there is evidence that price hikes through increased tax on cigarettes will result in some smokers moving to safer nicotine options as they incur a lower tax. Sweden is a good example; the tax on a can of snus was much lower than on a pack of cigarettes during the time that the market moved in favour of snus. The fact that a can of snus typically lasts a consumer twice as long as a pack of cigarettes compounded the price advantage. So, from a public health point of view, it is unfair for any organisation or company to be lobbying for tax parity on all products, yet the pursuit of revenue protection can create strange bedfellows - anti-tobacco groups backed by NRT interests and tobacco companies looking for price advantages over rivals. For example, a per-ml tax on e-cigarettes (as opposed to a percentage tax on wholesale price) benefits the larger companies who mainly sell cig-a-likes which only contain 1ml of liquid. Under say a $.05/ml tax, someone who vapes 10 ml of e-liquid daily would pay a $3.50 tax each week, while most cig-a-like users would pay just a $.05 tax each week because in very general terms, most cig-a-likes last a week (as many users just vape when and where they cannot smoke) while most vapers who quit smoking vape e-liquid on a daily basis.
I reckon if the word ‘tax’ was weaponised, you could put whole armies to sleep in seconds, but it is an important subject. It seems now that, prompted by the vape-hating Australians and the WHO, the World Customs Organisation (WCO) is looking to reclassify e-cigarettes as tobacco products. The WCO, established in 1952, is an independent intergovernmental body representing around 200 Member State customs administrations across the globe that collectively process approximately 98% of world trade. Among many functions, the Brussels-based organisation maintains the international Harmonised System (HS) of naming goods. HS codes are used by customs authorities, statistical agencies, and other government regulatory bodies, to monitor and control the import and export of commodities. And the penalties for mis-classifying a product can be punitive, including import bans and seizures.
In November 2016 the WCO Member States unanimously decided to classify e-liquids as Chemical Products in the HS. Now they are looking at reclassifying e-liquids under “Tobacco and manufactured tobacco substitutes”.
The WCO published a document in which it discussed shifting e-cigarettes and e-liquids out of the chemicals category and into the tobacco category. Chris Snowdon obtained a copy, pointing out that, despite the approach of the TPD, the WHO, many legislatures, and health agencies, so far for the purposes of international trade, e-cigarettes are not classified as tobacco products. Chris believes that such a reclassification “Would have several far-reaching repercussions” and highlights some examples:
- Some regions apply a 100% additional tax on tobacco products in addition to import tariffs;
- Tobacco products are left out of trade deals, so if classified as tobacco products, there could be no tariff discount deals struck on behalf of safer nicotine products;
- Tobacco products are excluded from investor protection under most new trade deals. So, if you want to start an e-cigarette business in Spain, for example, “Don't expect any protection when the government suddenly moves the goal posts, cracks down on vaping, confiscates your stock and forces your shop to close”;
- “Finally, it will send a negative message to governments about e-cigarettes. There is already more than enough orchestrated confusion about the health effects of vaping without a major international organisation lumping them in with cigarettes”;
- Tobacco products are listed under Chapter 24 of the HS. What the Aussies want is a new section 24.04, “Nicotine products for human consumption, not containing tobacco but containing nicotine”. The Aussie government admitted that e-cigarettes are not tobacco products but said that “They are closely related to tobacco in that they are used as substitutes for tobacco products”.
The WCO document also includes a recommendation from the Mali government to put heat-not-burn products in the tobacco category (at least there is some logic to this) but keep vape products in the chemical chapter under two categories (one for those that contain nicotine and one for those that do not). But not only does it look like the WCO is minded to classify all vape products as tobacco, but also classify NRT as such as well. Like so much that one finds in the wacky world of emerging safer nicotine product control – go figure.
Ok, so this is nothing to do with SNP, but shines a light on a relevant problem. I heard on the BBC News today that German scientists have concluded that simply being obese impacts on the heart, even if the person shows no clinical signs of being unhealthy due to their weight. In the same brief news report, it was stated that researchers from the USA criticised the findings, saying that the German study failed to account for exercise levels as their US research has done. Wouldn’t it be good if the tobacco harm reduction community could find a way of getting in some immediate rebuttals along these lines? Maybe we need some way of organising an independent rapid media response capability to combat junk science.
And finally, the new head of the CDC, Robert Redfield, has been associated with groups claiming that AIDS is God’s punishment for being gay.