Should E-Cigarette & Vape Companies Not Get Tax Deductions For Their Advertisements? (S. 2550)

What is S. 2550?

(Updated April 4, 2020)

This bill — the No Tax Subsidies for E-Cigarette and Tobacco Ads Act  — would deny a tax deduction for expenses relating to direct-to-consumer advertising to advertisements for tobacco products. The term “tobacco products” would include electronic nicotine delivery systems, such as e-cigarettes, e-hookah, e-cigars, vape pens, advanced refillable personal vaporizers, and electronic pipes.

“Direct-to-consumer advertising” would be defined as advertising primarily targeted to the general public through: 

• Publication in journals, magazines, other periodicals, and newspapers;
  
• Broadcasting through media such as radio, television, and telephone communication systems, direct mail, and billboards; and
  
• Internet or digital platforms (including social media, mobile media, web applications, digital applications, mobile applications, and electronic applications).

Products approved by the Food and Drug Administration (FDA) for sale as tobacco cessation products or other therapeutic purposes would be exempt from this ban. However, they would have to be marketed and sold solely for tobacco cessation or other therapeutic purposes.

Argument in favor

Television and radio ads for e-cigarettes and vapes are driving these products’ use by youth. Given the recent, highly publicized cases of lung damage and even death from these products, it’s clear that companies shouldn’t receive tax deductions that subsidize their marketing efforts. Eliminating the tax deduction for these products’ advertising won’t solve the problem of youth vaping on its own, but is an important step towards reducing these products’ direct marketing to teens.

Argument opposed

While receiving a tax deduction for direct-to-consumer advertising is nice to have, it’s not a precondition for marketing a company’s products. Therefore, it’s possible — and probable — that this bill won’t have any effect on vape and e-cigarette advertising. Instead of this bill, the FDA should ban e-cigarette advertising practices and media organizations should be required by law to reject e-cigarette ad purchases.

Impact

E-cigarette and vape companies; e-cigarette and vape companies’ advertisements; and tax deductions for expenses related to direct-to-consumer advertising for tobacco products.

Cost of S. 2550

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sen. Jeanne Shaheen (D-NH) introduced this bill to crack down on e-cigarette companies and close a tax loophole that allows manufacturers to claim federal tax deductions for the cost of advertising for e-cigarettes and tobacco products: 

“With the vaping crisis worsening and e-cigarette use surging among teenagers, we need to hold e-cigarette companies and Big Tobacco accountable for their advertising of these dangerous products. It’s egregious that these companies are able to write off the costs of their ads, which over the years have been targeted at kids. There are hundreds of confirmed cases of vaping-related illness and nine deaths – this has become a public health emergency that demands action. I urge members on both sides of the aisle to join me in my effort to crack down on e-cigarette companies by cutting off tax benefits that help bankroll their advertisements.”

Original cosponsor Sen. Richard Blumenthal (D-CT) adds: 

“Big Tobacco is relying on old regulatory loopholes to avoid paying taxes and encourage the use of their new lethal products. This legislation will close a gaping tax loophole and address the critical need to prevent young people from beginning a deadly addiction.”

In September 2019, American Medical Association President Patrice A. Harris, MD, MA called on media organizations to reject advertisements marketing e-cigarettes to youth: 

“The use of e-cigarettes by young people is a growing public health epidemic that must be addressed. That’s why we’re calling on media organizations to help us promote public health and reject any advertisements that market e-cigarette products to youth. While we’re pleased to see some media companies denying e-cigarette product ads during the current lung illness outbreak, we also encourage them and others to extend bans on e-cigarette product ads beyond the outbreak to help stem the rising use of these products among youth.”

Brian Jenssen, MD, MSHP made the case for the FDA banning e-cigarette advertising in a May 17, 2019 post on the Penn Leonard Davis Institute of Health Economics (LDI) blog PolicyLab. He wrote, “The FDA should ban advertising practices and the sale of flavored products, both of which have been shown to promote adolescent experimentation and addiction.”

Americans for Tax Reform and a number of other conservative groups, including FreedomWorks, Citizens Against Government Waste, and Independent Women’s Forum, urged the Trump administration to cease the regulatory assault against e-cigarettes and vaping products in an October 3, 2019 letter. Claiming that e-cigarettes “are at least 95% less harmful than traditional combustible cigarettes” and noting a New England Journal of Medicine study which found e-cigarettes twice as effective at getting smokers to quit as government-approved smoking cessation products like the nicotine patch, they wrote:

“We urge you to preserve access to life-saving alternatives to cigarettes for the millions of adults who rely on electronic cigarettes and vapor products to quit smoking in the United States… Your administration has rightly derided ‘regulatory dark matter,’ or agency-generated guidance because it imposes ‘back door’ regulations without going through a formal rule-making process. The flavored vapor product guidance under consideration by the FDA is among the most striking and nontransparent violations of your commitment to limit dark regulations since you took office. Unchallenged, the FDA will destroy thousands of small businesses without Congressional oversight and without sufficient input from the public…  Both the FDA and Centers for Disease Control and Prevention now acknowledge that the recent deaths and respiratory and lung illnesses associated with vaping have largely been caused by the illicit marijuana and THC market. Instead of targeting legal nicotine products that have existed for a decade, the administration’s focus should be on cracking down on California drug dealers that are poisoning consumers with dangerous, unregulated, and counterfeit products sourced from places like China and Mexico.”

This legislation has five Democratic cosponsors.

Of Note: The 1998 Tobacco Master Settlement Agreement banned television and radio advertising for traditional tobacco products and restricted certain other forms of Big Tobacco advertising. However, none of these restrictions apply to e-cigarettes. While CBS, WarnerMedia, and Viacom all decided to drop e-cigarette advertising effective as of September 2019, some outlets are continuing to run these companies’ ads. In a statement to CNBC, WarnerMedia spokeswoman Jennifer Toner said: 

“WarnerMedia reserves the right to withdraw advertising from its platforms at its discretion. Given warnings from the CDC, the AMA and the American Lung Association to consumers, our company has revised its policies regarding e-cigarette advertising, and will no longer accept advertising for this category. We will continue to monitor the investigations by relevant medical agencies and may re-evaluate our position as new facts come to light."

In January 2019, Juul — which has a 75% share of the U.S. e-cigarette market — introduced a $10 million TV advertising campaign, “Make the Switch.” Many of those ads were taken down in September 2019 over concerns that they targeted youth, and Juul halted most of its U.S. advertising across broadcast, digital, and print media in the same month (up to that point, it had spent $104 million on advertising in 2019).

In a September 9, 2019, letter, the U.S. Food and Drug Administration (FDA) issued a warning to JUUL expressing concerns over JUUL’s outreach and marketing practices, particularly those targeted at students, tribes, health insurers, and employers. Acting FDA Commissioner Ned Sharpless, M.D. wrote:

“Regardless of where products like e-cigarettes fall on the continuum of tobacco product risk, the law is clear that, before marketing tobacco products for reduced risk, companies must demonstrate with scientific evidence that their specific product does in fact pose less risk or is less harmful. JUUL has ignored the law, and very concerningly, has made some of these statements in school to our nation’s youth. In addition, we’re troubled about several issues related to JUUL’s outreach and marketing practices that came to light in a recent Congressional hearing. We will continue to scrutinize tobacco product marketing and take action as appropriate to ensure that the public is not misled into believing a certain product has been proven less risky or less harmful. We remain committed to using all available tools to ensure that e-cigarettes and other tobacco products aren’t being marketed or sold to kids. We’ve also put the industry on notice: If the disturbing rise in youth e-cigarette use continues, especially through the use of flavors that appeal to kids, we’ll take even more aggressive action.”

In its letter, the FDA discussed its determination that JUUL had marketed its products as modified risk tobacco products without an appropriate FDA order in effect. This, according to the FDA, would reasonably be expected to result in consumers believe that JUUL’s products present a lower risk of tobacco-related disease, are less harmful than other commercially marketed tobacco products, contain a reduced level of harmful substances, and/or don’t contain harmful substances. 

The CDC reports that tobacco product advertising can entice youth to use tobacco, and that spending to advertise e-cigarettes has risen rapidly since 2011. The CDC reports that about 69% of middle and high school students were exposed to e-cigarette advertisements in retail stores, on the internet, in magazines and newspapers, on television, and in movies. This exposure to e-cigarette advertisements may, according to the CDC, be contributing to increasing e-cigarette use among youth.

As of October 1, 2019, the Centers for Disease Control and Prevention (CDC) reported 1,080 lung injury cases associated with using e-cigarette or vaping products. These cases covered 48 states and one U.S. territory. They included 18 deaths across 15 states.

All patients report a history of using e-cigarette or vaping products, and most report a history of using THC-containing products. Approximately 70% of patients are male. Many patients are young, as about 80% are under 35 years old, 16% are under 18 years old, and 21% are 18-20 years old. Patients range in age from 13 to 75 years old, and their median age is 23 years old.

While its investigation is ongoing, the CDC recommends that individuals refrain from using e-cigarette or vaping products, particularly those containing THC. It also suggests that, regardless of the ongoing investigation, youth and young adults shouldn’t use e-cigarette or vaping products.

Media:

• Sponsoring Sen. Jeanne Shaheen (D-NH) Press Release
  
• American Medical Association (AMA) (Context)
  
• Penn LDI Blog (Context)
  
• CNBC (Context)