In a surprise motion, the Legislature’s Fiscal Committee voted 7-3 along party lines Monday to move $26 million in federal Coronavirus Relief Fund money to the state budget to pay for ongoing programs. But federal law does not allow such a transfer, leaving members confused about what the vote accomplished and whether it was legal. 

The Coronavirus Relief Fund included in the Cares Act provides $150 billion to states to help fight the virus. New Hampshire has so far received $625 million from the fund. That money is restricted for use in fighting the coronavirus. 

The IRS has issued clear guidance on how the funds are to be spent. It states:

“The CARES Act requires that the payments from the Coronavirus Relief Fund only be used to cover expenses that—

  1. are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19);
  2. were not accounted for in the budget most recently approved as of March 27, 2020 (the date of enactment of the CARES Act) for the State or government; and
  3. were incurred during the period that begins on March 1, 2020, and ends on December 30, 2020.”

Those three conditions make clear that the federal money may not be used to fund programs that were part of any state budget approved before March 27, 2020.  

Legislative Budget Assistant Mike Kane read that guidance to the Fiscal Committee during its Monday meeting, which took place over the phone. 

Nonetheless, the 7-member Democratic majority voted to move $26,050,000 in federal Coronavirus Relief Fund money to eight existing budget line items. 

In an attempt to navigate around the obvious legal obstacle, the committee’s motion contained the clause “to the extent U.S. Treasury guidance permits.” 

That clause prevents the money from being transferred unless Treasury issues new guidance authorizing budget backfilling.

After Republican members questioned the committee’s legal authority to move the funds, Kane said that under existing federal guidance “there’s not much that the committee can do at this point.”

“I would recommend that legal counsel should be sought,” he added.

He further suggested that any such transfer of federal CARES Act funds might have to be advisory only. 

Sen. Cindy Rosenwald, the motion’s sponsor, said she believed the clause requiring updated Treasury guidance made the motion advisory. 

But because the motion commits the committee to transferring the funds pending federal authorization, it is not clear that the motion is really advisory in nature. If Washington eventually allows the transfer, the vote on Monday presumably would make it automatic.

Sen. Lou D’Allesandro, D-Manchester, acknowledged that the committee didn’t know whether Washington would allow the transfer to happen.

“We now have the money, and if indeed it meets the requirements set forth by the federal government, we can again restore to the public items that we thought they needed at the time so that there’s no disruption in service,” he said.

“If that proves inaccurate, then we have to make a change,” he later added.

Though the move was legally dubious, from a public policy standpoint filling budget holes with relief money has merit.

States are incurring massive revenue losses as a result of the economic contraction caused by business closures and stay-home orders. Gov. Chris Sununu estimated that New Hampshire’s budget could face $500 million in cuts in the next fiscal year, on top of a few hundred million by June of this year.

The Josiah Bartlett Center for Public Policy last week joined other free-market state think tanks in urging Congress to remove those restrictions so states can backfill their budgets in just the way the Fiscal Committee voted to do on Monday.  (CARES Act Coalition Letter[1][1])

But until Washington acts, states cannot use Coronavirus Relief Fund money to fund programs that existed before March 27 of this year. 

Further clouding the issue, Sen. Rosenwald’s motion to move the $26 million was not on the Fiscal Committee’s agenda for Monday’s meeting. It surprised Republican members of the committee, who protested that the vote should be postponed until the public had a chance to weigh in and members had a chance to read the motion. 

No paper copy had been provided to committee members. The text was read aloud during the meeting. 

“We do not have a copy of that motion,” Rep. Lynne Ober, R-Hudson, protested. “I just think that it’s totally inappropriate to be voting on today.”

Rep. Erin Hennessey, R-Littleton, moved to table motion until the public had a chance to see it and guidance from Treasury allowed it. Her motion failed on a 7-3 party-line vote.

In the month before Gov. Chris Sununu ordered New Hampshire restaurant dining rooms closed, employment at New Hampshire full-service restaurants dropped by more than 8 percent (2,000 people), state figures show. In the month since the governor’s March 16 order, restaurant business has plummeted. State employment data are not yet available for those weeks, but industry insiders expect them to show catastrophic losses. 

Some New Hampshire restaurants already have gone out of business. Restaurant owners interviewed by the Josiah Bartlett Center in the last two weeks say things are bad and getting worse. If restaurants cannot reopen for in-person service in May, several said, the state can expect to see a wave of small-business closures.

A National Restaurant Association survey of restaurant owners nationwide found that 11 percent said they expected to close permanently within the next 30 days. Another 3 percent of those surveyed reported that they already had gone out of business. 

Restaurant revenue nationally is down by 50 percent for the year, according to data compiled by small-business software firm Wombly. That figure includes restaurants that specialize in take-out service, so the decline for dine-in restaurants would be even worse.

Full-service restaurants typically have low profit margins and high monthly expenses, including rent, insurance, taxes, and debt service on equipment. Reduced to take-out service only, many won’t survive if they can’t close the gap between their expenses and revenues. 

Anticipating that dining rooms are likely to remain closed beyond May 4, the Josiah Bartlett Center for Public Policy has drafted a list of policy recommendations to help full-service restaurants narrow their losses, and possibly return to profitability, so they can survive until the economy reopens. 

It’s important to understand that while on-premises service is halted by order of the state, other state laws and regulations prohibit restaurants from pursuing some potentially lucrative alternative sources of revenue. By temporarily relaxing some of these restrictions, the governor might be able to save numerous restaurants from closure, return some employees to work and reduce the burden on state services.

The policy changes listed below would help restaurants either bring in additional revenue or push back some expenses until later in the year, when dining rooms are expected to reopen.   

  1. Allow restaurants to sell beer in growlers. State law does not allow restaurants and bars to sell draft beer in growlers (large bottles, typically 64 ounces, with screw-on caps). With dining rooms closed, restaurants are sitting on thousands of dollars worth of draft beer inventory that they are prohibited by law from selling. The state lets restaurants sell draft beer for consumption on-site only. Keg beer has a short shelf life, so without an order allowing it to be sold for off-site consumption, some restaurants will be forced to pour out inventory worth tens of thousands of dollars. This waste is entirely unnecessary. An emergency order could allow restaurants to sell draft beer in their own growlers or to fill customers’ growlers after washing them in commercial washing machines. The order could require growlers to be transported out of reach of a vehicle’s driver.    
  2. Allow restaurants to sell mixed drinks in closed containers. The state objection to the curbside sale of mixed drinks is that drivers could open and consume the drinks while in the vehicle. But state law already allows patrons to transport open wine bottles from restaurants, provided the bottle is stored in a car’s trunk or out of the driver’s reach. Allowing restaurants to sell mixed drinks in closed, sealed containers, with the same distance-from-driver requirement that applies to opened wine bottles, could offer a significant sales boost for some restaurants without endangering public safety. 
  3. Allow restaurants to sell bottled liquor and wine. The Liquor Commission has let restaurants to return unopened liquor and wine, but only for store credit. That doesn’t help restaurants that need cash. State law allows restaurants to sell only opened liquor and wine, on premises. Temporarily allowing restaurants to sell unopened liquor and wine for take out would allow them to increase cash flow while reducing inventory. Though they wouldn’t be able to compete on price with state liquor stores, they could do a decent business from patrons who don’t want to drive all the way to a liquor outlet or who just want to support local restaurants. 
  4. Allow outdoor, in-person dining, subject to social distancing and other health protocols. Grocery aisles remain clogged with customers, many not wearing masks or following recommended social distancing procedures. Meanwhile, restaurant decks and patios where better health protocols can be enforced go unused. The state could let restaurants reopen outdoor dining areas subject to additional regulations, such as requiring restaurants to space tables at least six feet apart, disinfect tables and seats after each use, have staff wear masks, use disposable menus, and limit the size of parties and the number of customers allowed on site. Some restaurant owners suggested that they could make things work temporarily if the state cut their authorized seating capacity in half and banned large gatherings in lobbies.  
  5. Let restaurants defer rooms and meals tax payments. If restaurants could postpone their rooms and meals tax payments for 90 days, they could save some cash to help get through the emergency shutdown. Payments would still be made, but after business has picked up and more cash is coming in. 
  6. Municipalities can also help by letting restaurants defer property tax payments. 
  7. Give restaurants the same liquor and wine discount that grocers get. State law (RSA 178:28) grants grocers a 20% discount on the wholesale price of liquor and wine purchased from state liquor warehouses, but restaurants a discount of only 10%. Granting restaurants the same discount that grocers get will shave some of their costs when dining rooms reopen.

Restaurants operate on famously thin margins. Many will not survive a prolonged shutdown if the state continues to enforce regulations that prevent them from adapting to the forced closure of their dining rooms. Our recommended changes offer responsible adjustments that could keep many small businesses alive without creating additional risks to public health. 

A downloadable version of this brief is available here: Bartlett Brief — Restaurant Help During Shutdown 

If you’re sheltered at home and want a book or a puzzle, you have more options than you might realize. Almost all of New Hampshire’s independent bookstores are open for curbside pickup and local delivery for the duration of the governor’s stay-home order.

Though bookstores are not classified as essential businesses under Executive Order 17, the order’s Exhibit A contains a clause allowing all retailers, essential or not, to “transition to curbside pick up or delivery only for orders taken online, by phone, or by other remote means.”

We confirmed with the governor’s office that this business is allowed under the executive order.

We love books and bookstores (think tankers gotta think). Books open the mind to a universe of ideas, and book sellers are the little markets that offer this vast universe for sale (often at a discount).

Readers benefit when a robust marketplace facilitates competition among a wide variety of book sellers. To help with that, we made a list of New Hampshire independent bookstores that are doing curbside and delivery business during the stay-home order.

We found two independent bookstores that are closed for the duration of the executive order. If we missed any that are doing remote business, let us know.

Here is the list of stores that are taking orders for pickup or delivery, complete with links for your convenience:

 

Bayswater Books, Center Harbor (Phone orders only)

The Bookery, Manchester (Curbside pickup, book & food delivery)

The Country Bookseller, Wolfeboro (Curbside pickup, delivery)

Eyes of the Owl (used books), Wolfeboro (Online orders & shipping)

Gibson’s Bookstore, Concord (Curbside service, shipping)

Innisfree Bookshop, Meredith (Curbside service, delivery)

Little Village Toy & Bookshop, Littleton (Curbside service, shipping)

Main Street Bookends, Warner (Curbside service)

Morgan Hill Bookshop, New London (Curbside service, delivery)

River Run Bookstore, Portsmouth (Local delivery, online order & shipping)

Sheafe Street Books, Portsmouth (Appointment only)

Still North Books & Bar, Hanover (Online orders only)

Toadstool Bookshop, Keene, Nashua, Peterborough, (Curbside pickup, shipping)

Water Street Bookstore, Exeter (Curbside pickup, delivery, shipping)

White Birch Books, North Conway (Curbside pickup, local delivery)

WMUR’s Hometown Hero this week is Alexa Cannon, a Founder’s Academy senior who started delivering groceries to people after she lost her job. She’s one of many, from business owners to individuals, who have begun offering urgently needed services outside of traditional regulatory controls.

In normal times, government prevents a lot of this innovation and cooperation by requiring permission before people can enter the market with a good or service. (Think of the police shutting down children’s lemonade stands.) 

Why weren’t people making face masks for doctors, nurses, and patients before? Because they aren’t allowed to. 

The Food and Drug Administration, which regulates face masks and respirators, suspended its normal, shortage-creating regulations only on March 25.

Why weren’t private labs making Covid-19 tests in February, when the coronavirus was quickly spreading across the United States?

Because the CDC shared testing instructions on Jan. 28 but did not allow private testing until Feb. 29, costing the U.S. an entire month of widespread testing.

In New Hampshire, the governor had to issue emergency orders just to make sure doctors could provide health care services over the Internet, out-of-state doctors could practice in New Hampshire, pharmacists could make and sell their own hand sanitizer, and notary publics could offer services remotely. 

The state even prevents itself from innovating. To allow the transition to remote learning, the state Board of Education had to pass an emergency rule suspending the rule limiting remote learning to five days.

All of this comes from a presumption among lawmakers and regulators that the government always makes people safer by requiring approval before providers can enter the marketplace. 

That’s the impulse behind laws that make it a criminal offense to give haircuts without a license or build a treehouse without a permit. 

A distiller in Vermont got to the heart of the issue when he told the Valley News after transitioning to hand sanitizer production, “Legally, we kind of weren’t supposed to be doing this, but no one cares right now.”

The opposite presumption has come to be called “permissionless innovation.” Duke University economist Michael Munger defines it as “a strong presumption in favor of allowing experimentation with new technologies and with new business platforms that use those technologies.”

It is, Munger says, the most important concept in political economy. 

As he explains, “delays in processing ‘applications’ for permission to experiment sharply curtail the types and frequency of experiments that are possible.”

That’s exactly what we saw with the U.S. response to the spread of the coronavirus. Critical weeks were lost before the government figured out that we didn’t have time to wait for the normal regulatory process to play out. 

That normal process is not just a problem during emergencies. As Munger points out, it curtails experimentation and innovation all the time, making us less well off. 

The coronavirus pandemic is helping to expose many flaws built into our existing regulatory regime. A lot of regulations that prevent innovation and market cooperation are simply unnecessary. 

If the emergency is exposing needless state regulations in health care, imagine how many there are in all the other fields the state regulates. 

“The extraordinary government clampdown on economic life that we are enduring — in order to preserve hospital beds and the capacity of doctors and nurses — is the result, not just of the coronavirus, but of the severe restrictions on economic activity that have made our economy brittle and poorly-suited to adapt and respond to this natural emergency.”

That’s the important point economics professor Raymond Niles makes in a brief essay for the American Institute of Economic Research.

Governments are ordering business closures and social distancing to ration hospital beds and other health care resources for which previous government regulations had created supply shortages.

Niles cites state Certificate of Need laws, which ration health care resources by requiring state approval before providers can offer new services or buy new equipment, CDC and FDA regulations that have limited the supply of personal protection equipment (PPE), and licensing laws that prohibit doctors and nurses from working in other states.

“This is the context in which we face the coronavirus and it sets the stage for the subsequent choices we must make. Our government is not making the right choice of repealing these death-causing restrictions. It is only doing it in small, halting ad hoc steps and on a completely inadequate basis. The only proper choice for the government is to repeal all of these controls, or as many of them as possible, as quickly as possible.

“If the government did that, the explosion in entrepreneurial activity — in production of tests, vaccines, cures, hospital beds, innovative new treatments, and an abundance of PPE and other life-saving equipment — would be monumental and it would save thousands of lives.

“We are getting some of it, as doctors, entrepreneurs, manufacturers, and everyday people, with shackles on and maybe in some cases partially removed by government, struggle and produce. But we could be doing so much more.”

The shortage of PPE, ventilators, hospital beds and medical professionals has shown the need to reexamine reams of laws and regulations that have caused delays in responding to the coronavirus. New Hampshire legislators and regulatory boards ought to be making lists of such laws and rules to address as soon as possible.

 

 

On April 1, rents were due for the first time since Gov. Chris Sununu declared a state emergency on March 13. News organizations reported on Granite Staters struggling to pay rent after suffering significant income loss in March.

As communities come together to help each other through these difficult situations, it’s important to understand that renters in New Hampshire have been squeezed for decades by a problem identified years ago and never fixed: government-inflated rental rates.

Emergency aid and help from caring communities can provide short-term relief during the next few months. But long-term rent relief can come only by addressing the apartment shortage created by local government regulations. 

In 2002, a legislative commission created to study workforce housing concluded that local government regulations were making rents unaffordable for many families. (The commission’s report was titled “Reducing Regulatory Barriers to Workforce Housing in New Hampshire.”)

“Individual communities, each acting in its own economic self-interest, have disconnected the State’s local housing markets from the rest of our economy and created an artificial scarcity that has driven prices beyond the reach of a large and increasing number of working families,” the commission found.

In 2008, the Legislature tried to provide relief by passing a workforce housing law that required municipalities to create “reasonable and realistic” opportunities for workforce housing. 

Twelve years later, rents are still rising as municipal housing restrictions have continued to strangle the supply of rental units.  

Data collected by the New Hampshire Housing Finance Authority illustrate the problem. 

The average rent for a one-bedroom apartment in New Hampshire rose from $587 in 2000 to $1,055 in 2019. Had rents risen at just the rate of inflation, the price would be $871, or $184 less than the 2019 rate. 

The average rent for a two-bedroom apartment rose from $774 in 2000 to $1,347 in 2019. Had rents risen at just the rate of inflation, the price would be $1,149, or $198 less. 

Saving $198 a month on rent would come to $2,376 a year. Some people who can’t pay rent this month because their hours were cut or their employer closed might have been able to cover a payment that was $184 or $198 cheaper.

As the 2002 legislative report noted, rents are being pushed up by local government regulations that have created an artificial scarcity in the rental housing market. For decades, demand for apartments and multi-family homes has far outstripped supply. Not enough rental units are being built because local governments have made it extremely difficult to build them. 

That inescapable fact is reflected in the state’s shockingly low rental vacancy rate. A healthy apartment vacancy rate is around 5 percent. New Hampshire’s rental unit vacancy rate in 2019 was 0.6 percent. The rental vacancy rate for the United States at the end of 2019 was 6.4 percent, according to the Federal Reserve Bank of St. Louis. 

New Hampshire renters have been burdened for decades by regulations that have prevented the supply of rental housing from matching demand. In boom times, restrictions on the construction of rental housing give the appearance that growth is being limited at no cost. But the cost is always there, and it hurts the most during times like this when thousands of people are losing their jobs or having their pay reduced.

If New Hampshire communities want to be places where everyone can find a home, the supply shortage will have to be addressed.

Here’s a surprise. In New England, only the Republican governors of New Hampshire and Vermont have issued COVID-19 executive orders that direct all individuals to stay home unless otherwise allowed to go out.

That finding comes from a review of all of the New England governors’ executive orders that restrict travel and business activity.

To try to “flatten the curve” and reduce COVID-19 transmissions, New England governors have taken similar approaches, with some notable differences.

Though Massachusetts and Connecticut are listed by several news organizations as having issued “stay home” orders, Govs. Charlie Baker and Ned Lamont have issued “stay at home” advisories, not orders.

The governors of Rhode Island and Maine have ordered non-essential businesses to close, but the closest they got to a stay-home order came in Rhode Island Gov. Gina Raimondo’s March 22 executive order that closed non-essential businesses. 

“All business services personnel that can work from home are required to do so,” it states.

Business closures

Business closures and limitations on gathering size are the primary methods by which New England governors have restricted people’s mobility.

All New England governors have divided businesses and non-profits into “essential” and “non-essential” categories and have ordered non-essential businesses to close. 

And all have banned gatherings of more than 10 people. (Conn. Gov. Ned Lamont on Thursday limited gatherings to five people.)

Every governor created a long list of essential businesses, which makes these orders far less strict than they at first appear. 

So many businesses are listed as essential that it would be shorter to list the types of businesses required to close (as Maine’s order did) than to list those allowed to stay open. 

Late this week, Massachusetts and Rhode Island added additional travel restrictions. Rhode Island’s Raimondo ordered anyone traveling into the state from New York State to quarantine for 14 days. Massachusetts’ Baker asked everyone traveling into the state to quarantine for 14 days.

New Hampshire has not attempted to limit cross-border travel. Though Gov. Sununu has issued a stay home order, it contains numerous exceptions. And the list of essential businesses (here) is long. 

Tradeoffs

Maine Gov. Janet Mills, an aggressive regulator during the legislative session, has been the least aggressive issuer of COVID-19 executive orders in New England. On Tuesday she ordered non-essential businesses closed but has resisted many other orders, including a stay home or shelter in place order. 

Mills explained her reluctance to issue a stay-home order by saying at her Tuesday press conference, “there are public health risks to people staying in place as well as public health risks to people not staying in place. We want everyone to be cautious and courageous at the same time.”

Governors clearly were weighing lots of potential unintended consequences and tradeoffs. One consideration was whether people would stay home without being told. 

Cell phone data show that New Englanders were already starting to stay closer to home before more restrictive orders were issued. 

A COVID-19 social distancing scoreboard created by data analytics firm Unacast, which monitors cell phone GPS data, shows that most New England states experienced a sharp decline in miles traveled throughout March. 

New Hampshire was one of only a few states to receive an “A” rating for achieving at least a 40% reduction in miles traveled by March 23. Vermont also got an A. Maine was rated the worst in New England, with a decline of only 26%.

Unacast’s data show that, nationally, miles traveled declined sharply until last weekend, when they flattened and rose again. It’s possible that the expectation of more restrictions caused a short-term increase in travel, perhaps for shopping or to enjoy a last gasp of personal freedom before settling inside. 

That might have happened in New Jersey. That state’s shelter-in-place order was issued on March 21. The state quickly saw a V-shaped spike in miles traveled after the order. 

Limited action

The big takeaway is that every New England governor has tried to balance competing values and impose the least restrictive orders that might achieve the desired results. Their differences are largely a matter of degree. And that indicates a broad bipartisan consensus that even when trying to fight a deadly contagion, tradeoffs have to be made and government coercion limited. 

The orders

New Hampshire

Massachusetts

Maine

Connecticut

Vermont

Rhode Island

Forcing people to carry reusable food and beverage containers in public could accelerate the spread of microbes that cause infectious diseases, multiple academic studies suggest, the Josiah Bartlett Center for Public Policy shows in a new policy briefing paper. 

As government strives to suppress the spread of the novel coronavirus, policymakers should immediately repeal laws, regulations and ordinances that ban disposable food and beverage containers, utensils and plastic straws. 

Attempts to ban “single-use” plastic grocery bags, water bottles and straws, as well as non-recyclable utensils and to-go containers, have spread worldwide in recent years. New Hampshire legislators make annual efforts to impose such bans or restrictions, and several municipalities already have banned plastic grocery bags. Concord, Mass., banned single-serving plastic water bottles in 2013.

As these bans were debated, concerns about public health tended to be dismissed, even though studies have shown genuine potential health hazards. This briefing paper outlines the public health reasons why policymakers should reject these bans.

The full briefing paper can be read here: JBC Disposables Ban Coronavirus.   

If you haven’t stocked up on toilet paper, hand sanitizer, disinfectant wipes or milk yet, good luck. By the time you read this, your local supermarket might well be out. At noon on Friday, the Bedford Market Basket had some scattered half gallons and a single gallon-jug of milk left. (It was chocolate, indicating poor judgment on someone’s part.)

Supermarket shelves are empty all over New Hampshire as Granite Staters raid stores for milk and various sanitizing products. It’s as if the state’s been sacked by obsessive-compulsive pirates with rickets. 

But it wasn’t pirates (alas). Shelves are empty because basic market price mechanisms did not kick in. 

When demand surges as it did this past week, price increases typically follow. Higher prices discourage hoarding and encourage suppliers to boost production. But supermarket executives know that if they discourage hoarding by raising prices, people will accuse them of “price gouging.” So they don’t raise prices. Predictably, shortages result. 

A Union Leader story that credited the shortage to “panic buying” featured a Hannaford sign taped to a bare shelf. The store “may have frequent out of stocks on many toilet paper products for the foreseeable future,” it warned.

Well, of course. When toilet paper costs exactly the same during a period of peak demand that it did the week before, buying more than you need comes with zero additional cost. You might as well buy a bunch now “just in case” because it’s the same price now as it was last week and it will be next month. 

A price increase would make some people think twice about buying more than they think they’ll need. That would leave more for people who have a greater immediate need. 

Unwilling to raise prices, stores have tried to discourage hoarding by imposing purchase limits. “There is a daily purchase limit on this item of 2 per customer,” read one sign at a local Hannaford on Friday. It sat on an empty shelf. Such limits are a form of rationing. They’re just not as good a form as price adjustments are. 

Shortages, by the way, are also a form of rationing. They’re just a really bad one.  

“Price gouging” can have different meanings. Raising the price when one has a monopoly on a good or service is one. Raising prices in a competitive market when demand surges is another. The second meaning is the misleading one. People equate the two, but they aren’t the same.

Studies done on gas price increases after hurricanes Katrina and Rita found that the prices were regular supply and demand fluctuations, not arbitrary impositions, as in the case of the monopolist. A 2007 price gouging study published in the Journal of Competition Law and Economics analyzed the impact on the economy if price gouging laws had been in effect after those two hurricanes. The authors estimated that “economic damages would have been increased by $1.5–2.9 billion during the two-month period of price increases.”

That’s because laws that ban “price gouging” are really just price caps. And price caps create shortages during periods when the market price otherwise would rise above the cap. 

Economist Milton Friedman made exactly this point when writing about the U.S. gas shortages in 1973. 

This week’s supermarket sell-outs are caused by the failure of prices to find their natural market equilibrium. If government forbade sellers from raising prices, the result would be the same. 

Thankfully, New Hampshire has no anti-price-gouging law to make shortages even worse.

The state’s first vaping tax took effect on January 1, just nine weeks ago. On Thursday, the House approved a bill to more than quadruple it. But the revenue is unlikely to be the bill’s biggest effect.

House Bill 1699 raises the tax on the liquid used for e-cigarette vaping to 40% of the wholesale price. The current rate is 8% for open systems (fill your own) and 30 cents per milliliter for closed systems (cartridges). 

On a 12-8 vote, the House Ways & Means Committee asserted that the increase was justified because of the potential negative health effects of nicotine contained in vaping liquid.

“The nicotine delivered by electronic cigarettes is a toxic addictive chemical derived from the tobacco plant,” Rep. Richard Ames, D-Jaffrey, wrote for the committee. “We know it is addictive. But we don’t yet fully understand the extent of the damage to vital human organs, particularly the lungs and heart, that may be caused by its inhalation through the vaping process. We don’t yet know its effect on the human brain, particularly its effect on the still developing brain of a young person.”

But nicotine researchers have repeatedly pointed out that nicotine should be treated as less harmful than tobacco smoking.

“We need to de-demonize nicotine,” Ann McNeill, professor of tobacco addiction at the Institute of Psychiatry, Psychology and Neuroscience at King’s College London, told Scientific American in 2015.

The reason is that switching from cigarette smoking to vaping produces dramatic reductions in health risks and has been associated with declines in tobacco use.

A study McNeil published in 2018 concluded that the health benefits of switching to e-cigarettes were so profound that e-cigarettes should be prescribed by doctors as smoking-cessation tools. 

“When people smoke tobacco cigarettes, they inhale a lethal mix of 7,000 smoke constituents, 70 of which are known to cause cancer. The constituents in tobacco smoke that cause the harm are either absent or at much lower levels… in e-cigarettes so we are confident that they are substantially less harmful than cigarette smoking,” McNeil told the BBC.

“People smoke for the nicotine — but contrary to what the vast majority believe, nicotine causes little if any of the harm. The toxic smoke is the culprit and is the overwhelming cause of all the tobacco-related disease and death.”

The health argument being used for HB 1669 perpetuates the misconception that there’s little difference in the health risk between tobacco smoking and vaping. 

In fact, there’s a huge difference, and a growing body of research shows that vaping helps smokers quit, leading to improved health outcomes. A study published in the New England Journal of Medicine last year found that e-cigarettes “were more effective for smoking cessation than nicotine-replacement therapy, when both products were accompanied by behavioral support.”

The presence of nicotine in vaping liquid plays a significant role in helping smokers make the switch from tobacco to less-harmful e-cigarettes. A 2016 National Institutes of Health study and a 2015 Society for Research in Nicotine and Tobacco study found that smokers preferred e-cigarettes with higher nicotine content, suggesting that e-cigarettes with higher levels of nicotine helped people quit smoking by offering a satisfying substitute for tobacco. E-cigarettes with lower nicotine levels were less effective. 

Were the state leaving people alone to make their own decisions, the health outcomes would be a matter of individual choice. But in this case legislators are attempting to use the tax code for the express purpose of changing people’s behavior.

That puts the government on the hook for the outcomes. Given the strong link between vaping and smoking cessation, any government effort to discourage vaping would likely lead directly to worse health outcomes for smokers. 

Because the research showing vaping to be an effective smoking cessation method is well publicized, skeptics might conclude that a more powerful motivation for such a tax would be the revenue. (As with nicotine, collecting and spending tax revenue can be habit forming.)