Smoking cessation & SCHIP, a catch-22

The SCHIP bill (State Children’s Health Insurance Program) in the US which became effective in April, 2009, raised taxes on cigarettes, cigars, and other tobacco products to expand children’s health care for low and middle-income families. Federal taxes on cigarettes increased from 39 cents per pack to $1 and are expected to raise 33 billion dollars annually to fund the expansion of the federal health care initiative.

The anti-smoker cult in the US gleefully supports the shake down of smokers because, as they see it, it will force some smokers to quit. Uh-huh.

That’s the kind of circular logic that will have John Q Public scratching their heads and wondering if there are any politicians in Congress with an IQ higher than their age. Why would anyone with a modicum of common sense tie the expansion of a government health program to a declining revenue source?

On the one hand, the government levies a tax on smokers to fund the health care initiative, while with the other they hand out huge amounts of cash to anti-smoker fanatics to wage war on smokers. But, by forcing smokers to quit, and preventing others from taking up the habit, they reduce the tax base required to support the initiative. Catch-22.

This paradox was not lost on the Heritage Foundation. Prior to approval of the bill to expand SCHIP, they pointed out the shortcomings of the legislation. In an article, by Michelle C. Bucci and William W. Beach, they noted that: “To produce the revenues that Congress needs to fund SCHIP expansion through such a tax would require 22.4 million new smokers by 2017”.

The article suggests that the expansion of the SCHIP program will likely run into difficulty within a few years. By 2013, for example, the Heritage Foundation estimates the initiative will need 9 million new smokers to maintain the revenue level required to sustain the program.

Of course, they could simply increase the tobacco tax to compensate for the lost revenue, thus forcing more smokers to quit or find alternative, less expensive sources for their tobacco products. But this approach has already been responsible for the creation of a very lucrative black market which cuts into both tax revenue and the profits of legitimate business enterprises which depend on cigarette sales to stay in business. And, the number of smokers who will actually quit due to the tax increase is debatable.

Of course, there are other solutions. One is to terminate the SCHIP program and leave millions of people without health care; the other is to transfer the tax burden to non-smokers. Neither will be popular among the general population.

After reading the article from the Heritage Foundation, it seems pretty clear that by expanding the health care program through increased tobacco taxation, the government has painted themselves into a corner.

Increasing tobacco taxes is a short term, band-aid type answer to a problem which requires long-term, sustainable solutions. And, it's bad public policy.