Smoke, mirrors and taxes

Congress proposes to fund its $35 billion expansion of children’s health coverage — assuming it survives an expected presidential veto — with a 61-cent increase in the federal cigarette tax, bringing it to a dollar a pack.

Superficially, the idea has considerable appeal. The high tax might discourage — it certainly punishes — people engaged in a life-threatening habit that the government officially discourages. Simultaneously, it provides the funds to extend health coverage to uninsured children.

But Congress may find it has run afoul of the law of unintended consequences.

If the tax works as planned, the number of smokers will decline and so will the revenue. Increasing the tax again might run afoul of another law — diminishing returns — and Congress would face the unpleasant task of either capping the program or increasing taxes elsewhere.

Critics of the tax say that funding the natural increase in the child health program over the next 10 years will have Congress in the perverse position of needing 22 million new smokers.

The tax will fall most heavily on the poor and the poorly educated because disproportionately more of them are smokers. It may be correct if mean-spirited to say they shouldn’t be smoking in the first place, but taxes that single out a class of people are generally not good policy. However, the cold political fact is that cigarette smokers are just not politically popular and the imposition of this punitive tax smacks of “serves them right.”

The tax increase will raise the cost of cigarettes substantially. Six states already impose a tax of $2 per pack or more — Arizona, Maine, Michigan, Rhode Island and Washington, with New Jersey topping the list at $2.57. And counties and cities also add taxes, with New York City hitting smokers for $1.50 a pack on top of the state levy of $1.

As cigarettes become more expensive, they also become more attractive targets for robbery, theft and hijacking, and more states are likely to join New York and New Jersey in their battle with a black market in bootlegged cigarettes.

The price of a justifiable expansion of child health care may have the unintended consequence of creating a new class of tax evaders.

4 Responses to "Smoke, mirrors and taxes"

  1. dtotire  October 2, 2007 at 9:40 am

    Good point. I support this legislation, but I prefer that it be funded by a general consumption tax, such as a VAT on most items.

  2. SouthTexasGirl  October 2, 2007 at 10:38 am

    If you really want to generate more tax money to support the schip, how bout tax BOOZE,, there are probably more boozers in America than smokers.

  3. SEAL  October 2, 2007 at 12:45 pm

    Anything that discriminates is wrong.

    When is this country going to wake up and trash the whole tax and health care system? Just figure out how much it will take to run the country, including medicare for everyone, and charge all of us the same percentage of income tax and have an adjustable federal sales tax.

    At the same time, social security has to be changed. People are living 20 years longer than when it was established, primarily due to medicare. The retirement age must be set back about 10 years. And here is a fact most probably don’t know. The minimum SS is just over $600 a month. There are jillions of widows receiving only about $1300 a month. That is enough if you have a family that cares about you but what about those who don’t?

    This plan is just like everything else they have been doing for the past 50 years – slapping bandaids on a wounded system.

  4. JudyB  October 2, 2007 at 3:37 pm

    Putting a HIGH tax on all items not considered good for ones health (ie: butter, cream, salt, sugar, junk food and all foods containing trans fats) would make as much sense and seems just as
    fair.If they want to add high taxes to things we do that pose a danger to life..why not add high taxes for matches, unsafe sex, enlisting to fight in this deadly Iraq war or gun purchases?? Give me a break..this proposed added tax is a sham …I am against it and I don’t even smoke!!!

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