Everybody wants healthy kids, right? And we all gain from a growing low-tax economy and the better jobs and higher wages that usually result. So why are Democrats in Congress using kids to raise taxes?
Congress is debating reauthorization of the Children’s Health Insurance Program (SCHIP) this week. Although SCHIP doesn’t work well in getting kids covered with good health insurance and there are better free-market solutions to do the job, Democrats want to expand the $35 billion program by at least $60 billion over five years.
Their rhetoric is all about working for “healthy kids,” but what really appears to be the Democrats’ objective with SCHIP is to use a tax hike on cigarettes of 61 cents per pack to pay for growing an ineffective program beyond its original scope. By raising the threshold for eligibility from 200 percent of the poverty line to 300 percent, the Democrats’ plan seeks to cover wealthier children and adults in what they promote as the first step toward universal health care.
This is smart politics because, much as Americans like healthy kids, we don’t like smokers. They are increasingly allowed to only light up outside and some cities are even being chasing them away from public areas all together.
These perennial scapegoats for state and local governments have seen their taxes more than double over the last few years. When taxpayers revolted in the 1990s and made raising broad-based taxes too costly for elected officials, states turned to targeted tax increases to fuel their spending appetite.
Tobacco became the number one target both in terms of number of tax increases and dollar amounts. States raised more money from tobacco taxes than they did from income taxes over the past seven years. All told, tobacco taxes accounted for 30 percent of all state tax increases during the last recession in 2000-01, compared to just 5 percent in the previous recession, according to calculations by Americans for Tax Reform.
Nanny-staters have so abused smokers for so long that they are now turning to junk food and other behaviors that Americans should “know better” than to practice.
Currently, over 82 percent of the cost of a pack of cigarettes goes to the government in taxes and other payments. With a 61 cent per pack increase in the tax rate, as much as 90 percent of the average price per pack would go to the government. No one can claim with a straight face that tobacco users do not pay their “fair share” of the cost of government spending.
However, an increase in the federal excise tax on tobacco has implications beyond grumbling smokers digging deeper into their pockets at the gas station; a tax increase on tobacco means significantly less business for the small businesses that rely heavily on tobacco sales as consumers turn to the Internet and black market sources for tobacco. It means states will see their declining revenue source decline even faster.
The basic reasoning behind tobacco tax increases is flawed. Proponents argue that Congress can have increased revenues to expand SCHIP, while encouraging more people to stop smoking.
It is absurd to argue that a tax hike will decrease the number of people buying tobacco and that it will simultaneously increase tax revenues. As much as they like healthy kids, it’s hard to imagine taxpayers shelling out $10 in taxes for one cigar, or handing over $3.85 to the government per pack of cigarettes.
It’s time for members of Congress to stop being bullied by “it’s all for the kids” rhetoric and instead vote against expanding another failed federal program. It isn’t enough to raise taxes and hope no one holds it against you because it is just supposed to hurt a small group of consumers.
When small businesses close, when 401 (k) plans – many of which are invested in major tobacco companies – take the hit, and when the nanny-staters turn to people who eat red meat and drink 2% milk to make up the difference as the revenue continues to decline, taxpayers will demand answers from their representatives in Congress for why these things happened.
Those who do vote for the SCHIP tax hike will need to come up with more than “I like kids” as a reason for raising taxes on a shrinking revenue source to grow a failed program.
Elizabeth Karasmeighan is a national policy analyst for Americans for Tax Reform.
