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E-cigarettes and vaping raise new questions about the risks to health from their use and how they should be regulated and taxed compared to tobacco. The latter has a long history of taxation and a more recent history of regulation in the United States. E-cigarettes, on the other hand, have only recent begun to be regulated, but by treating them as “tobacco products” the federal regulator includes them by default in the regulatory apparatus design for tobacco control and is sending the tacit message that they are just as harmful as smoking. That is not likely to be the case.

Rationales for regulating tobacco center around correcting for adverse consequence to others of smokers’ decisions, correcting for faulty reasoning of smokers, and paternalism. Taxes and regulations on tobacco can have the unintended consequences of increasing inequality, since their burden falls mainly on lower-income individuals, and stimulating illicit trade in tobacco.

Discussion of regulation targeting e-cigarettes begins with answering many fundamental questions about vaping: is vaping safer than smoking? (almost surely so); can e-cigarettes aid cessation of smoking? (most likely); are children getting addicted to e-cigarettes (perhaps, but probably not in the numbers often assumed); does vaping lead to smoking? (unknown; the evidence is much weaker than often presented); will the new federal prohibition on selling e-cigarettes to those under 21 years of age reduce youth vaping? (unknown, since sales to youth were already disallowed in most places); are there health harms from secondhand vapor? (possibly, but they are almost surely much less than any from secondhand smoke); and whether restrictions on tobacco advertising apply (or should apply) to e-cigarettes (most do not, and applying them may hinder adult cessation). Unintended consequences of 2

regulating e-cigarettes include the potential for exacerbating the problem of illicit trade, which already exists, and discouraging harm reduction for smokers who would otherwise switch to vaping.

The state of knowledge about the health harms of e-cigarettes and other relevant factors are far too uncertain to arrive at a solid idea of what optimal regulation would look like or what the optimal tax rate would be, as conventionally defined by economists. However, several steps can be taken in the right direction. For tobacco, the possibility that tax rates are too high must be considered. Regarding e-cigarettes: 1) the concept of risk-proportionate regulation should be the guiding principle; 2) the tendencies to understate the likely health benefits of switching from cigarettes to e-cigarettes should be curbed; 3) the uncertainty regarding the health effects of e-cigarettes should not be used to discourage smokers to switch; 4) targeting regulation narrowly at youth is better than broadly applied rules; 5) heavily taxing e-cigarettes is not likely to be in the best interests of public health; 6) careful consideration of whether banning the use of e-cigarettes in public spaces is appropriate is warranted; and 7) regulatory uncertainty at the federal level should be resolved quickly. Finally, in regards to both tobacco and e-cigarettes, serious attention must be paid to the interplay among illicit markets, taxation, regulation, smoking, and vaping. In particular, since e-cigarettes offer smokers an alternative to buying illicit tobacco products, e-cigarettes can attenuate the link between tobacco taxation and illicit trade and thus can provide a valuable “safety valve.”