SCHIP and “the” tobacco tax

Tomorrow Congress is set to hold its override vote on Bush’s SCHIP veto. Most of the debate has been focused on the program itself and the terrible PR Republicans have deployed in fighting it. The funding of the expansion with higher tobacco taxes has received less comment. The Post is an exception today with an editorial on “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.

The problem, aside from the dubious premise that we ought to be manipulating people’s consumption choices through taxation, is that there is no “the tobacco tax.” In addition to the cigarette tax increase, the bill also includes a massive increase in cigar taxes. Cigars are currently taxed at five cents a piece; the proposal before Congress will hike this up to a new rate capped at $3 per cigar. That’s an increase of 6,000 percent! (Believe it or not, the original Senate bill capped at an absolutely insane $10 a stick.)

It’s understandable why The Post would only mention cigarettes and ignore cigars, cigarette smokers being just about the easiest minority to pick on in American politics. But the cigar tax could be devastating to an industry made up of small businessmen and artisinal producers. It will certainly reduce sales and probably induce some smokers to switch to pipe tobacco, an item that offers much less profit to sellers. (It too will be taxed more, but pipe tobacco has a very low price per use.) If passed this bill will be a major hit to tobacco store owners and anyone working in the industry abroad.

From a public health point of view, cigars are much less damaging than cigarettes. They are smoked less often, by fewer people, by adults, and generally not inhaled into the lungs. Good cigars are also completely natural, free of the chemical additives found in cigarettes. While by no means a risk-free habit, there’s no justification for taxing them into oblivion. And of course the best reason not to tax them: relaxing with a well-made cigar and a good friend is one of the finest enjoyments life has to offer.

(As a side note, one unintended consequence of the tax will be a likely increase in smuggling and mail ordering from outside the US. And if one’s going to buy cigars on the black market, why not buy Cubans?)

Regardless of how one feels about SCHIP, the proposed tobacco taxes are a lousy way to fund it. If supporters think it’s a worthy program, they ought to be willing to pay out of general revenues rather than foisting the costs onto smokers and setting fire to the benign business of high-end tobacco products.

For more information, follow the story at No More Tobacco Taxes or The Stogie Guys.

[Update: Safe for now! Thanks, Mike!]

Comments

  1. Zhubin says:

    I agree, general revenues would be preferable. But when our stupid government finally stumbles out of the Gilded Age and we institute universal health care, this nibbling at the tax fringes will stop.

  2. Cigar Jack says:

    I read a statistic somewhere that said 35 million people will need to take up smoking to pay for this program. Not to mention the number of adults covered by this program makes me wonder exactly what defines a child in the eyes of these lawmakers. Entitlements and Pork, that is all government is about anymore and if something doesn’t change soon I fear we are all going to be in a world of hurt.

  3. Jeff says:

    Yeah, my main worry about this funding proposal is that it’ll actively discourage cigarette smoking, thus causing less of an increase in revenue from the tax than what planners might expect. (Jack, do you have that stat handy?) So is the bill simply being used as a handy excuse to raise the cigarette tax? Depends on how much of a conspiracy theorist you are, and I’ve been enjoying those more than I should lately…

  4. Mike says:

    (WARNING: Mike is about to bring out one of his “pet issues” for absolutely no reason. He apologizes ahead of time.)

    Of course, if we just legalized marijuana and taxed it the same way we tax cigarettes, simultaneously freeing all prisoners incarcerated for pot-related offenses, the overall increase in revenue/decrease in spending would probably be enough to bear a large amount of the funding burden. But we must protect the children.

  5. Jacob Grier says:

    Yes, but what you are advocating would END THE WORLD!

  6. D White says:

    Wouldn’t it be more sensible to tax parents on their children, rather than smokers on their cigarettes, to pay for children’s health care? Maybe that’s just mean, but such a move could be a boon for condom makers.

  7. Jacob Grier says:

    Legalizing pot, taxing children… there’s some great ideas in this post.

Trackbacks

  1. [...] Raise A Stogy In Celebration!! Jacob and I have been trading emails back-and-forth all day discussing the pending SCHIP veto-override vote which the House of Representatives undertook today.  As Jacob noted on his blog post, The problem, aside from the dubious premise that we ought to be manipulating people’s consumption choices through taxation, is that there is no “the tobacco tax.” In addition to the cigarette tax increase, the bill also includes a massive increase in cigar taxes. Cigars are currently taxed at five cents a piece; the proposal before Congress will hike this up to a new rate capped at $3 per cigar. That’s an increase of 6,000 percent! (Believe it or not, the original Senate bill capped at an absolutely insane $10 a stick.) [...]

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