One of Obama’s first acts in office is likely to be approving an expansion of the State Children’s Health Insurance Program. Since SCHIP is “for the children” and will be funded by taxing unpopular smokers, passage in Congress is a sure bet, as is Obama’s signature.
Full details of the House bill won’t be available until tomorrow (Tuesday), but according to George Edmonson at Stogie Guys a potentially devastating blow to small businesses has probably been dodged: the floor tax that might have applied to current stocks of cigars held by tobacco shop owners. Additionally, there’s speculation that the cap on taxing individual cigars will drop from the $3 per stick that was vetoed by George Bush last year, which was itself down from an original $10 proposed cap. Read George’s post for details.
That’s the good news. The bad news is that taxes on tobacco are still going to rise, making cigars more expensive and significantly increasing the price of cigarettes. The latter is a consumption tax that will fall disproportionately on the poor, marking a painfully regressive start for the incoming administration. See Jacob Sullum on this point here.
Regardless of SCHIP’s merits, it shouldn’t be funded by additional taxes on tobacco. As Tom Firey and I wrote for the Cato Institute last year:
Smoking in the United States is already declining significantly — largely as a result of public awareness of its dangers, not higher taxes. The declining number of smokers makes cigarette tax revenue unstable. Congress’s Joint Committee on Taxation projects that if the new tax rate is implemented next year, tobacco revenues will fall nearly 10 percent over the next decade…
SCHIP’s advocates believe the program is critical to providing healthcare to children. That’s debatable. But if Congress and the president decide to expand the program, they should cover its new costs with general tax revenues, not taxes on smokers alone. Higher tobacco taxes are unfair, unadvisable, and unlikely to bring in enough money.
I don’t have any special insight into SCHIP as health policy. For a critique and some alternative approaches, see Michael Cannon.