Pennsylvania Politicians Are Paying Close Attention to E-Cigarette Taxes

In 1988, Senator Bob Packwood asked the Joint Committee on Taxation how much revenue the federal government would collect if it imposed a 100% income tax on income over $200,000.

The committee completely ignored the fact that people change their behavior when tax rates change, and answered that such a tax would raise more than $1 trillion over five years.

But when income is taxed at 100%, people stop working. A 100% tax would not bring in anything close to $1 trillion. In fact, it would collect almost nothing. Packwood knew that; he simply wanted to point out the mean-spirited foolishness of those who advocate higher taxes without even considering the consequences.

In 1991, the committee’s analysts returned, this time claiming that a 10% “luxury tax” on yachts, private planes, and expensive jewelry would raise an additional $500 million a year. But when the dust settled, tax revenue had actually fallen by $24 million. Once again, congressional analysts assumed that people would keep buying the same amount of luxury goods after the tax increase as they had before.

What people actually did was exactly what any sensible person could have predicted—they cut back on their luxury purchases. In fact, consumers reduced their spending so much that workers in the luxury goods industry were laid off, which led to even more tax losses when unemployed workers stopped paying income taxes.

Fast forward to October 1 of this year, when Pennsylvania will impose a 40% tax on e-cigarettes and related products. Governor Tom Wolf claims the purpose of the tax is to increase state revenue. But Wolf is making the same mistake the tax committee made in 1988 and 1991.

He assumes that in response to a tax as high as 40%, vapers will not change their behavior. But every sensible person knows they will. They will simply buy their products online from out-of-state suppliers. The 40% tax rate will generate precisely no tax revenue. In fact, Pennsylvania’s tax revenue will fall because 300 vape shops across the state will close, destroying at least 300 taxpaying jobs, and probably more.

We would like to believe that our elected officials are not fools. But in this case, foolishness is the charitable explanation. A more likely explanation is that the governor and legislature believe they are entitled to decide how free citizens of Pennsylvania should live. They have decided that you should not have e-cigarettes, and they are doing everything they can to make them harder for you to get. With this tax, they are driving an entire industry out of Pennsylvania because they have decided they do not like it.

That is the real issue. When politicians decide they are entitled to tell people how to live, what people want no longer matters. The political class knows this is indefensible, which is why they so often lie to us when imposing these rules. And as for the vaping tax, it will leave us with no additional tax revenue and more unemployed citizens. But the political class will have gotten what it wanted, and to them, that seems to be all that matters.