First Things First is looking for a new source of funding. A new tax on vaping could be the answer

A group that distributes money for Arizona early childhood development programs says it needs to find new sources of revenue. And one area it’s identified: vaping.

This comes as a tax on cigarettes approved by Arizona voters two decades ago is generating less money; that money goes to First Things First for those programs. So, the group wants state lawmakers to approve a new tax on vaping products to fund its work. But, as with any new tax at the Arizona Legislature, this one appears to be a tough sell.

Howard Fischer of Capitol Media Services joined The Show to talk about it.

Full conversation

MARK BRODIE: Good morning, Howie.

HOWIE FISCHER: Good morning. Of course taxes are a tough sell. The question is, will this one be an exception?

MARK BRODIE: Right. OK, so the situation is basically, fewer people are buying cigarettes, right, because fewer people are smoking them. So that is generating less tax revenue to go to First Things First. So what is the situation, what are their books looking like right now?

HOWIE FISCHER: Well, in the first year after voters approved the tax in 2006, the first full year, it brought in something like $169 million. The collections are now projected to be in the $89 million range. And remember, the $89 million doesn’t buy what $89 million did even two decades ago, so you’ve got a double problem there.

So the argument by Melinda Morrison Gulick, who’s the CEO of First Things First, which was also created in 2006, is, look, if vaping had been around then, it’s a nicotine product, and sort of like smoking, like cigars, like cigarettes, like pipe tobacco, all of which are taxed, we probably would have taxed that. You know, what people would have done two decades ago, who knows?

So she says it just makes sense to go ahead, since some people have switched from tobacco to vaping, to make that burden to — for these health programs, you know, early childhood development and subsidized child care, and programs to help parents know what it takes to be a good parent, have that paid for by these sin taxes, for lack of a better word. The problem is that the original one was approved only by like 53%.

So they want the Legislature to come in and say, “Well, let’s just do a whole new tax. We don’t have to take it back to the voters.” But the problem, as you know, having been at the Capitol, is a new tax takes a two-thirds vote, which means 20 of 30 senators and 40 of 60 House members, plus a gubernatorial signature. And that is a really big climb.

MARK BRODIE: Right. So does First Things First have an estimate for if vaping products were to be taxed, like would that bring them back up to the $160-some-odd million that they were getting at the beginning?

HOWIE FISCHER: Well, here’s the yes and no. It depends on how big the tax is. They want a tax that’s equal to 50% of the retail price of the product. So if a product costs, let’s say, $10, it would now be $15. Now, they say they could raise $100 million a year on that, which would, again, bring them back to about where they were. That’s a really big climb.

Remember that cigarettes run what, about $10, $11 a pack now, and of which $2 is taxes, $1.20 — there was a previous tax for health programs — the 80 cents a tax on this. So imposing a 50% tax is going to be really hard for lawmakers to swallow, plus the fact that the vaping industry says, “Look, A, we want to be treated fairly, we’re willing to contribute. And B, if you raise the tax so much, you end up with a black market where people just get the product sent in from elsewhere and you don’t get the revenues anyway.”

So this is going to be a really hard sell to get that much money.

MARK BRODIE: Well, I’m also wondering, Howie, why they’re going after vaping when there was kind of a sense, even early on in 2006, that at some point, like the goal was to get people to stop smoking or smoke less, which would necessarily bring in less revenue. Like I wonder if by going after vaping, First Things First is just kind of setting themselves up to have to do this again at some point down the road.

HOWIE FISCHER: Well, that’s an interesting question because you’ve got a larger issue there. The original idea, people like Will Humble, who was head of the Department of Health Services at the time, said, “Look, if people are vaping, that’s probably less harmful than tobacco.”

But as we’ve also seen, as they come up with all these new flavors and gadgets and everything else, you have people who never smoked who have taken up vaping. And so that’s a question in terms of what the system will be like. But the larger question becomes, how do you decide that something is related to vaping? I mean, it’s one thing to say we’re going to tax tobacco for smoking cessation programs. How does early childhood development relate to somebody vaping? And why that? Why not the liquor tax?

I think part of the reason it’s not the liquor tax is the liquor lobby is a lot stronger than the vaping lobby, and a lot stronger than tobacco lobby. Well, why not something else? You know, why not a tax on people who listen to public radio? I know, Heaven forbid.

MARK BRODIE: No don't do that.

HOWIE FISCHER: But you come down to a question of so what’s the connection here, and why should these people be responsible for funding early childhood development?

There may be a good case to be made for that. It may also be that since only about 8% of people smoke or vape, it’s an easy tax to do because it doesn’t affect 92% of Arizonans, Arizona adults. The question is, is that the way to go? Is it fair? Is it logical? I don’t know.

MARK BRODIE: OK. Howie, very quickly before I let you go, if the Legislature doesn’t go along with this, is First Things First prepared to try to go back to the voters?

HOWIE FISCHER: Well, technically speaking, First Things First can’t because it’s a quasi-state agency. It was created that way, so they can’t go back to the ballot. The question then becomes, who will? It’s very possible the Chamber of Commerce might go ahead and support this, because the Chamber happens to like the fact that if people have child care, that they’re more likely to be in the workforce. It helps create a better workforce and more people willing to work.

Will the Chamber of Commerce take this on? That’s, again, going to be a hard sell for the Chamber, which is always there saying we want lower taxes, to say, “Oh, but this one, we want higher taxes.” I think it’d be a really hard sell to take this to the ballot.

MARK BRODIE: OK. That is Howie Fischer with Capitol Media Services. Howie, thanks as always.

HOWIE FISCHER: Have a great day.