Another Voice / Tobacco taxes
Hiking levy to fund health care defies reality
Updated: 08/26/08 6:55 AM
SCHIP is an acronym for the federal State Children’s Health Insurance Program, and congressional Democrats are likely to vote in September to expand the program by $35 billion. To finance the increased spending, the Democrats would enact the largest tax increase on cigarettes and tobacco products in U. S. history.
While SCHIP is an important program to provide health insurance to children in low-income families, attempting to fund the $35 billion expansion solely through a federal tobacco tax increase should sound alarm bells in the halls of Congress.
The $35 billion expansion relies on higher tax rates for all tobacco products. That includes raising the cigarette tax by 61 cents a pack, or 156.4 percent, increasing the tax on cigars up to $3 per cigar or 6,000 percent, and hiking the tax on pipe tobacco and smokeless tobacco by 156.4 percent.
These proposed tax rates are so high that they become punitive. Moreover, this selective taxation of tobacco is discriminatory and is leading to the ultimate tax: prohibition.
In just the past 18 months, New Jersey, Michigan, Wisconsin, Tennessee, Maine, New Hampshire, Maryland and Vermont have raised cigarette and/or tobacco taxes only to subsequently collect less tax revenue than before the latest increase or collect far less than the amount projected. These experiences are a testament to this new fiscal reality that cigarette and tobacco tax increases have run their course.
While the previous two SCHIP bills, which were vetoed by President Bush, sought to increase funding for the program by $35 billion over five years, the federal government is not immune from the significant revenue shortfalls experienced by states after raising tobacco taxes. The very premise that increasing cigarette and tobacco tax rates by the proposed amounts will generate an additional $35 billion defies economic logic and common sense.
Even though some smokers may quit, inevitably a greater percentage of Americans will obtain cigarettes from the black market and other illegal sources that inevitably flourish in the wake of predatory taxation and prohibitionist policies.
In other words, Congress should fully expect that cigarette and tobacco tax collections by the U. S. Treasury will fall far short of the projected $35 billion sought to expand the SCHIP program.
Besides budgetary shortfalls for SCHIP funding, the negative economic impact will be felt nationwide by thousands of retailers, wholesalers and their employees. These tax increases will result in double-digit sales declines of tobacco products and force family-owned retailers and wholesalers to go out of business.
Congress must find an alternative way to fund the expansion of SCHIP because the last thing the economy needs is more business closings and a higher unemployment rate.
Thomas A. Briant is executive director of the National Association of Tobacco Outlets.
