Funding Health Care with Tobacco Tax Won’t Work
While the popularity of Congress may be at record lows, you have to give our elected officials credit for being clever. The idea being proposed by some Senators to tax an unpopular group – tobacco users – to pay for a popular concept – government health insurance for children – will certainly appeal to many. But as with many clever Congressional proposals, the reality of this plan is much less appealing than its presentation.
The State Children’s Health Insurance Program (SCHIP) is up for reauthorization in Congress this year. This program pays for different children’s health care programs run by state governments. In Ohio, it pays for part of the Children’s Health Insurance Program (CHIP). CHIP is a separate program from Medicaid, but the two programs have similar goals and are basically run as one program.
One of the problems with the federal reauthorization of SCHIP is that money is tight. Congress and the President have been on a spending spree for the past few years, and new budget rules require that any new spending be offset by spending cuts in other areas or an increase in taxes.
Compounding the problem with SCHIP, some states have been using this federal money not only to pay for the health care of children (as the program intended) but also for adults. That increases the cost of the program and has led to situations where states have run out of money for their state CHIP services partway through the year.
Faced with a problem of how to pay for increasing SCHIP spending, some in Congress want to hit the one group of taxpayers most unpopular with the public: tobacco users. After all, these folks are a minority of the population and we all know that their tobacco use costs taxpayers millions, right? So why not tax them to pay for this popular program?
While it may be unpopular to defend lower taxes for tobacco users, it is an issue of fairness and fiscal responsibility. It is poor tax policy to tax a certain group in order to deliver benefits used by a wider group of people. The only legitimate reason to tax a group is to offset any harm that group causes to society. And while many think that smokers impose a large cost on the government, studies have found that the cost of smokers to society is roughly thirty-two cents a pack. Ohio taxes cigarettes at $1.25 a pack and the federal government taxes them at thirty-nine cents a pack, so smokers are already paying more than their fair share.
Of course, there is also a practical reason not to impose such a tax. Tobacco tax revenue is a declining revenue source. As fewer people smoke, taxes from cigarettes and other tobacco products decrease. Government health care spending, on the other hand, increases almost every year. In Ohio, for instance, Medicaid spending went up 11 percent every year earlier this decade.
If you try to pay for an ever-increasing government program with a continually-decreasing tax base, the revenue will not there. That means there will be a need for other tax sources to pay for it. So when you hear those pushing this tobacco tax increase as the “solution” to SCHIP funding, skepticism is warranted. When a similar proposal was floated by anti-smoking groups in Ohio in 2005, state lawmakers wisely rejected it.
Those following this debate should also be skeptical of efforts to expand government health insurance programs like Medicaid and SCHIP. Here in Ohio, Governor Strickland is continuing his tour of the state to push for expanding both programs. In reality, these programs push people off private insurance and encourage people to sign up for poor quality health care. Instead of looking to expand these programs, both federal and state officials should be looking to expand private insurance coverage.
Unfortunately, the debate at both the federal and state level is not about reforming these programs, but about expanding them. If SCHIP is to be reauthorized (and it almost certainly will be), this flawed program should not be paid for by a tobacco tax increase. If this program is as popular as it seems, then all taxpayers – not just smokers – should bear its burden.
Marc Kilmer is a policy analyst with the Buckeye Institute for Public Policy Solutions, a research and educational institute located in Columbus, Ohio.
