Thank you for smoking?

11/7/2007

One of the toughest debates in politics right now surrounds SCHIP, the federal program that provides funding for children's health insurance. While Congress and the President differ over the particulars of the bill, less has been said about how it will be funded. The current proposal calls for massive increases in tobacco taxes. While Bush has indicated his opposition to this funding source, it's a popular idea with voters. How can one object to taxing a nasty habit to save children's lives? The Washington Post, for example, comes out in favor with an editorial supporting "the" tobacco tax:

For every 10 percent increase in tobacco prices, the number of adult smokers drops by 1.5 percent and overall consumption drops 2 percent. Young smokers are much more responsive to price increases than adults, so higher tobacco taxes are particularly effective in preventing youths from moving beyond experimentation to habitual smoking. Pregnant women are similarly affected; a 10 percent price increase produces a 5 to 7 percent reduction in smoking.

This may not be a surprising analysis, but it does come from a somewhat surprising source: the President's Cancer Panel, which endorsed, in its most recent report, an increase in the federal excise tax on tobacco. President Bush has done the opposite; he vetoed an expansion of the State Children's Health Insurance Program (SCHIP) that would be funded by a 61-cents-a-pack increase in the tobacco tax, to $1 per pack. The tax hasn't been increased in nearly a decade.

There are several problems with this reasoning, starting with the fact that there isn't just one tobacco tax. Taxes on all forms of tobacco will be increased, included a 6000% increase in the tax cap on cigars, from 5 cents to 3 dollars per stick. The impact the tax may have on small tobacco retailers is a matter The Post chooses to ignore.

But more importantly, it's a dubious proposition that the federal government ought to be using taxes to penalize behavior it deems unsavory. Perhaps a limited case can be made that tobacco ought to be taxed to pay for the health costs smokers pass on to governments, but between state and local taxes, the Master Settlement Agreement, and existing federal taxes, this burden has already been met for reasonable estimates of tobacco's costs. The current proposal, and others like it in Oregon and California, seek to control the behavior of consenting adults far beyond the externalities they may impose.

The effectiveness of SCHIP and state-run health programs is a matter of debate. But if, as their supporters claim, they are important programs, that is all the more reason not to fund them with tobacco taxes that are sure to decline as smoking becomes less popular. The fair approach is to fund them out of general revenues, rather than passing their costs on to a politically convenient minority.

by Jacob Grier

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LibertyGuide contributor Jacob Grier also writes at his own blog, Eternal Recurrence.