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Ironies and Taxes

The tortuous history of e-cigarette marketing has produced an array of ironies that boggles the mind.

By buying Blu last year, Altria started a veritable gold rush of Big Tobacco firms eager to strongarm their way into a market that was hurting their sales. As 2013 draws to a close, virtually all of the Big Tobacco firms have either bought an e-cig company or marketed their own line of electronic cigarettes. The industry leaders in e-cigarettes are now all from Big Tobacco, a scenario no one imagined in 2006 when e-cigarettes came on the scene. An industry that was in disgrace after revelations of murderous fraud in the '90s and the settlements that followed, then in despair as the movement to ban public smoking spread like wildfire in the first decade of this century, now stands to recoup its fortunes by selling an antidote to its poison, even as it continues to sell the poison. To cap the climax, the French courts seem poised to grant Big Tobacco a monopoly on both products, practically a license to print money.

Virtually all of the offerings of Big Tobacco are "cigalikes", e-cigarettes that look very much like the toxic ones, sometimes differing in color, but only that. Smoking ban zealots like New York's health commissioner complain that the public cannot tell whether someone is vaping or smoking, giving that as a supplementary reason for the ban. Anti-smoking activists often seem revolted by the sight of something that looks like smoking (and the fact that an e-cig tip may gleam in a different color doesn't seem to ameliorate their distaste). On the other hand, a smoker aiming to use e-cigs in a quit strategy may prefer a cigalike because of the psychological effect of mimicking the smoking experience. Of course cigalikes are also marketed by some companies that are not Big Tobacco, companies that sell no poison. And of course vapers who started with the product early on are not confused; in many cases they have moved beyond cigalikes to personal vaporizers and are often enthusiastic about them. Cigalikes seem to appeal more to newbies at this point.

Many fear that stringent regulation will further benefit Big Tobacco firms, since they have the deep pockets to afford expensive compliance operations, operations that could sink smaller companies that make PVs.

Of course everyone expects that regulation will entail taxation, perhaps punitive taxation to discourage use. Again, Big Tobacco, which sells poison as well as its antidote, can afford such taxes, little e-cig companies that sell no poison, only the antidote, might not be able to afford them.

If one puts all of these ironies together and shuffles the components around, like in a shell game, one begins to wonder if some kind of Robin Hood tax might serve a variety of salubrious purposes. Slap the highest taxes on companies that sell both toxic cigarettes and e-cigs. Tax personal vaporizers at a lower rate. Impose a moderate tax, in between these two rates, on the sale of cigalikes by non-cigarette companies. Some of the extra money from taxes at the higher rate could be set aside in a fund that small vaporizer companies could draw on to help them meet compliance costs.

This would have the effect of a punitive tax to discourage a dangerous behavior, a tax break for small time players with a beneficial product, and an incentive for consumers to progress toward a product that the general public finds less distasteful.