July 25, 2007

Smoking Heals

By: David White

Imagine if Democratic lawmakers sought to provide handouts to the children of middle class voters by instituting a tax on America’s poorest citizens.

Implausible? Think again. Just last week, the Senate Finance Committee approved a measure that would do just that — and newspapers around the country have come out in support of the action.

The legislation in question would reauthorize the State Children’s Health Insurance Program, the enormously-popular venture that has brought health insurance to more than 6 million low-income children since its creation ten years ago. Originally authorized for just ten years, the program is currently set to expire on September 30.

Since its launch, however, SCHIP has strayed quite far from its original intent.

For example, even though the program was ostensibly created to benefit children, many adults are covered. In Minnesota, nearly 90 percent of SCHIP enrollees were adults in 2005. In Wisconsin, that number totaled 66 percent.

And even though the program was designed for the nation’s poorest kids, SCHIP is often used to insure children whose parents can afford to purchase private coverage. In New Jersey, for instance, SCHIP covers kids whose parents earn more than $72,000 a year.

Even though this behavior caused these states (and many others) to overspend their SCHIP dollars, congressional lawmakers saw nothing wrong with this giant misuse of funds. They bailed out the states that overspent.

And rather than use this opportunity rein in the runaway program and redirect the funds toward the nation’s neediest kids — 689,000 of whom lack health insurance, according to a recent Urban Institute estimate — Senators have decided to expand this massive intervention in the healthcare market, increasing SCHIP spending by $35 billion over the next five years.

They plan to fund the effort through a 156 percent increase in the federal cigarette tax.

But even though it’s easy for Washington’s lawmakers to target smokers, such a proposal is a gross abuse of public policy, as targeting cigarette smokers is the most unfair way to fund the expansion of children’s health insurance.

According to the Census Bureau, nearly half of the nation’s smokers are in families that take home less than 200 percent of the federal poverty level. Indeed, the Department of Health and Human Services recently estimated that nearly 30 percent of those who fall below the federal poverty level are regular smokers. Meanwhile, only 18 percent of those who earn more than 200 percent of the federal poverty level smoke.

Further, according to a paper published by the Tax Foundation, the cigarette tax hurts the poor more than any other federal levy. When compared to an increase in the alcohol tax, the gasoline tax, the air transport tax, the corporate income tax, the payroll tax, or the individual income tax, nothing harms the poor quite like taxing cigarettes.

So while conservatives and libertarians often argue for an equitable tax structure — and liberals often call for one that’s progressive — a cigarette tax is highly regressive, as it disproportionately harms the poor.

But wait, cry supporters of higher cigarette taxes: Don’t smokers impose greater costs on society? And therefore, shouldn’t policymakers tax cigarettes to recoup those costs and discourage smoking?

Not really.

First, there’s a considerable debate as to whether smokers actually impose a financial burden on society. It’s counterintuitive, but much evidence suggests that smokers actually drain fewer public funds than nonsmokers. Because smokers die young, the government doesn’t have to pick up the healthcare tab in their later years.

And even if smokers do actually cost more, then excise taxes should only be used to compensate for that specific cost. As Gerald Prante of the Tax Foundation recently argued, “Taxes levied above and beyond that point may be politically expedient because smokers are unpopular, but they only serve to make the federal tax system less principled and more regressive.”

Finally, if the push for higher cigarette taxes is coming from public health advocates who seek to reduce smoking, then this measure is comically wrongheaded. Paradoxically, it makes the government even more dependent on tobacco. As Michelle Bucci and William Beach of The Heritage Foundation pointed out, “policymakers will somehow need to recruit new smokers if they insist on using the tobacco tax revenue to support SCHIP at proposed funding levels over the long term. In just five years, Congress will need over 9 million new smokers.”

Providing poor children with healthcare is a laudable goal. But this measure does no such thing. Instead, it’s pure political opportunism — cynically targeting a small, politically-unpopular minority to provide “free” health insurance to the children of America’s most-coveted voters.

David White, a writer in Washington, is a regular columnist for Brainwash. He is also the host and producer of Inside Washington Weekly, a weekly podcast from America’s Future Foundation.