Smoking and taxes don’t mix

Published 8:57 pm Wednesday, January 14, 2009

With the state and the nation facing deficits of historic proportions, both Congress and the General Assembly looked for easy ways to raise taxes this week, turning their attention to smokers.

In Virginia’s case, Sen. Janet D. Howell (D-32nd) submitted Gov. Timothy M. Kaine’s request for a 30-cents-per-pack cigarette tax increase, legislation that would double the state tax that Virginia smokers pay to continue their habit. At the federal level, legislators were considering an increase of 61 cents per pack — along with a rise of as much as 20,000 percent in the tax on cigars.

In both cases, the taxes would go toward health-related programs. The Virginia Health Care Fund, which would benefit from Richmond’s largesse, helps fund community health services, helps close the gap between Medicaid payments and doctors’ charges and provides money for various other health-related causes.

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The higher federal tobacco taxes would go to support a massive expansion of the State Children’s Health Insurance Program. Congress wants to spend $35 million during the next five years to make the program — once intended to provide health insurance to children of poor families — available to far more children and adults than the 6 million or so who already qualify nationwide.

Earmarking cigarette-tax revenues for healthcare, especially that of children, is hardly a new tactic. Politically, it’s hard to go wrong taking a stand against smoking or in favor of children. Conflate the two issues, add a bit of demagoguery and you’ve got a sure winner.

The problem with both proposals, however, is the reality of the free market. As taxes rise, tobacco demand will fall, and the programs that benefit from those taxes will suffer — or a wider group of taxpayers will be forced to contribute. For example, based on the historic effects of tax increases on smoking, the Heritage Foundation estimates that supporting SCHIP in five years will require an extra 9 million people to start smoking.

Another problem is the fact that cigarette taxes have a disproportionate impact on low-income people, as studies show that there are significantly higher percentages of poor and near-poor smokers than wealthy ones. The effect of that distribution in this case is that low-income smokers will pay for the health insurance of children in middle- and high-income families.

How’s that for regressive taxation?

Whether or not higher cigarette taxes and broader taxpayer-subsidies for healthcare are desirable in their own right are questions that merit public debate. Connecting the two policies, though, is a cynical political ploy that will wind up being costly to far more people than just smokers.