Increase in tobacco taxes – two sides to this story

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The House of Representatives has passed legislation supporting the State Children's Health Insurance Program (SCHIP) and in so doing has voted to increase the federal cigarette tax by 45 cents per pack.

Ironically, cigarette taxes target those SCHIP is supposed to help: the working poor, who are statistically more likely to smoke, according to the Citizens Against Government Waste. Excessively high excise taxes lead many consumers to circumvent the tax by purchasing products out-of-state, online, or through illegal sales. It also reduces the number of smokers. Paradoxically, the Heritage Foundation found that the government needs 9 million more smokers in the next five years to pay for the program, and 22.4 million by 2017.

The following statement was issued by William V. Corr, Executive Director, Campaign for Tobacco-Free Kids:

The U.S. House of Representatives has taken an important step to protect the health of America's children and save lives by passing legislation to increase the federal cigarette tax by 45 cents a pack to help fund the State Children's Health Insurance Program (SCHIP). It is great news for America's health that both houses of Congress are moving toward approving a significant increase in the federal cigarette tax, which will prevent kids from starting to smoke and encourage smokers to quit. The Senate is expected to vote this week to pass a 61-cent cigarette tax increase in its version of the SCHIP legislation. The higher the cigarette tax Congress approves, the greater the benefit in reducing smoking and improving health.

A higher cigarette tax is a win-win-win solution for the country - a health win that will reduce tobacco use and save lives, a financial win that will raise revenue to help fund the SCHIP program and reduce tobacco-caused health care costs, and a political win that is popular with voters. A recent poll conducted for the Campaign for Tobacco-Free Kids found that 67 percent of voters support a 75-cent per pack increase in the federal cigarette tax to provide health care coverage to uninsured children, while only 28 percent oppose it. This support is evident among virtually every political and demographic subgroup of voters across the country, with large majorities of Democrats, Republicans and Independents, men and women, and urban and rural voters supporting the cigarette tax to fund children's health care.

Increasing the cigarette tax is a proven strategy to reduce smoking, especially among children. Studies show that every 10 percent increase in the price of cigarettes reduces youth smoking by seven percent and overall cigarette consumption by about four percent. A 61-cent increase in the federal cigarette tax will prevent almost 1.9 million kids from ever starting to smoke, help almost 1.2 million adult smokers quit, prevent more than 900,000 smoking-caused deaths and produce $43.9 billion in long-term health care savings.

Tobacco use is the leading preventable cause of death in the United States, killing more than 400,000 people and costing more than $96 billion in health care bills each year. Currently, about 23 percent of high school students smoke and more than 1,000 kids become new regular smokers every day.

The national poll of 1,000 registered voters was conducted by the Mellman Group May 29-June 3, 2007 and has a margin of error of plus or minus 3.1 percentage points. You can view the detailed poll results.

The flip side

A 156 percent increase in the federal excise tax on cigarettes approved by the Senate Finance Committee is being billed by some as a "win-win" situation: it will give free health coverage to millions, and it will force some smokers to quit smoking. "What could be wrong with that?" advocates ask.

Here's what's wrong with it, according to Reynolds American Inc. Reynolds American Inc. is the parent company of R.J. Reynolds Tobacco Company; Conwood Company, LLC; Santa Fe Natural Tobacco Company, Inc; and R.J. Reynolds Global Products, Inc.

  • Most of the people paying the tax make less than the people getting the free government health care. The median household income of an American smoker is about $35,000. Yet people eligible for the free insurance could make up to $82,000. Why should lower-income people pay for free insurance for middle- or upper-middle-class earners?
  • When the higher tax rate drives some smokers to quit smoking, the revenue generated by the tax declines. The Heritage Foundation estimates that an ADDITIONAL 22 million Americans would need to take up smoking in the next 10 years to fund the free health insurance. (Perhaps the public service ads for THAT strategy might have Harry and Louise saying, "Honey, quit smoking - it would be good for you." "Nah, I'll keep smoking - it's good for the kids.")
  • Cigarette sales volume has declined approximately 20 percent in the last decade, but health care spending has gone up by about 95 percent. Anyone want to do the math that proves that funding a rising cost with a declining income source isn't good fiscal policy?
  • Why should private employers continue to offer health insurance when their employees can get it free from the government? The median U.S. household income is $46,500 - well below the income needed to qualify for the new insurance entitlement program. Many private employers will leap at the chance to get out of the cost and administrative headache of providing benefits to their employees since those benefits would be available from the government.
  • The very same Congress that will be voting on the tax increase is simultaneously considering regulation that would enable the government to make cigarettes taste like "lard," according to one supporter of that bill. The goal would be to make cigarettes so unappealing to consumers that it would force people to quit smoking. So then who's going to pay for the free insurance?
  • The insurance program giveth and it taketh away. Since the increase in the federal tax will drive down cigarette volume, the states will lose an estimated $6 billion in revenue from their own excise taxes and settlement payments from the cigarette manufacturers. Every state has a projected expectation of income from their state excise tax factored into future budget years. Can Congress spell "shortfall?"

The Senate is expected to support this legislation, while President Bush has threatened to veto the bill.

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