Federal Tobacco Tax Hike May be Used to Partially Fund SCHIP Expansion

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Should federal tobacco taxes be raised from their current level of 39 cents a pack to help pay for health insurance for uninsured children? That question may be addressed soon, as the Senate Finance Committee and the House Ways and Means Committee are expected sometime this summer to mark up legislation to fund an expansion in the State Children's Health Insurance Program (SCHIP) that will cost $50 billion over five years. In February Senator Gordon Smith (R-OR) proposed raising the federal tobacco tax to about a dollar per pack, which he has recently said would raise as much as $35 billion of the $50 billion needed for the SCHIP expansion. The Campaign for Tobacco-Free Kids released a survey recently showing that two thirds of voters support hiking the federal tobacco tax by as much as 75 cents a pack if the funds go towards health care for uninsured children.

As the Campaign for Tobacco-Free Kids has pointed out, cigarette taxes are an effective policy if the goal is simply to reduce smoking or to prevent young people from taking up the habit. But using this revenue source to fund important programs is more problematic. Cigarette taxes (whether on the federal or state level) are regressive, meaning they take a larger proportion of income from a poor family than from a wealthy family. (If two smokers, one poor and one wealthy, are smoking the same amount and paying the same tax of one dollar a pack, that one dollar equals a larger percentage of total income for the poor smoker than for the wealthy smoker). It's always better to fund important programs with progressive taxes. Tobacco taxes also provide less funding over time, since they do not increase with inflation or with the price of cigarettes generally, so they are rarely a "permanent" solution to any funding problem.

Nevertheless, expanding health insurance for children is an extremely important priority that may require compromise. Tobacco taxes are not an ideal funding source, but then again, legislation produced by Congress is rarely ideal.

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