TOBACCO TAX INCREASES: PROs and CONs

Volume 28, Issue 497 August 6, 2007

Matthew Gever

Taxing tobacco has become a popular method for states to pay for health care. Earlier this year, for example, Indiana increased taxes by 99.5 cents per pack to help expand access to the uninsured. In its battle over the reauthorization of the State Children’s Health Insurance Program (SCHIP), Congress is considering a similar approach. On August 2^nd, the Senate passed a bill (S 1893) to reauthorize SCHIP with funds coming from an increase in the federal tobacco tax from 39 cents per pack to $1. The Senate Finance Committee projects the increase would raise between $25 billion and $60 billion over 5 years. Meanwhile, the House passed a similar reauthorization (H 3162) that would increase per-pack taxes by 45 cents.

Advocates note that tax increases not only raise money for health care, but encourage more people to quit by making cigarettes more expensive. Some, however, argue that cigarette taxes hurt the very people that SCHIP is supposed to help. Data from the Department of Health and Human Services and the Heritage Foundation (see below) show that the majority of smokers have incomes below 200 percent of the federal poverty level. The Heritage study also points out that 22.4 million new smokers will be needed by 2017 to fund SCHIP at the proposed level. Additionally, a new study from the Tax Foundation indicates that the proposed federal tax would take more from poorer families than any other proposed tax to raise SCHIP funds.

22476.html