Congress Wants to Smoke Out Taxpayers — Again

Congress is looking to raise the federal tobacco tax again.

The excuse this time is to help pay for a huge expansion of the State Child Health Insurance Program (SCHIP). Expanding the SCHIP program is unwise, not least as another step on the road to government-run health care.

Raising taxes to pay for more spending generally is a case of the old adage that two wrongs don't make a right. But turning to a tobacco tax hike is discriminatory and thus especially unsavory.

Congress has long held tobacco users and the industry in high contempt. Smoking and the tobacco industry are widely unpopular, especially among upper-class trendsetters (and even among conservative economists).

The product is severely unhealthful. And the only real defense the industry can muster is their shareholders' contentment in enormous ongoing profits.

Yet Congress won't eradicate tobacco entirely. Why is that?

It's not as though we're dealing with poppy growers in Afghanistan. The whispered excuse is the political power of tobacco interests.

To be sure, the tobacco industry has been a big player in Washington, D.C., for a long time, but that's not why Congress has won't match actions to rhetoric. The real reason is that Congress itself is addicted to tobacco.

The tobacco addiction Congress suffers is tax revenues -- the nico-tax addiction. The federal tobacco tax is now 39 cents a pack, generating $7.2 billion in tax receipts in 2005.

Of course, the tobacco tax addiction extends well beyond our nation's capital. Every state levies a tobacco excise, from a high of $2.75 a pack in New Jersey to a low of 7 cents a pack in South Carolina.

If lawmakers meant all the mean things said about tobacco companies, they would drive the product from our shores.

They need not pass a constitutional amendment or alter the Federal Drug Administration mandate to erase the touted scourge. As Chief Justice John Marshall once said, "The power to tax involves the power to destroy."

If Congress really wanted to destroy the tobacco industry, a truly punishing tax increase would do the trick.

But Congress loves tax revenue more than it hates tobacco. And so, from time to time, they threaten to raise the tobacco tax further, but not too much.

In this case, Congress is looking to roll in an increase in the tobacco excise to $1 a pack along with expanding this specific government-run health-insurance program.

SCHIP was part of the 1997 budget deal as the first step toward national health insurance. Congress now wants to take the next step by vastly expanding coverage.

The Senate has already passed a bill to more than double the program to $60 billion. But under the budget rules, it has to pay for the new spending.

Enter the higher tobacco tax -- just high enough to generate the needed revenues, but not so high as to reduce materially the ranks of smokers or do real damage to the industry.

Though most Americans actively disdain tobacco and tobacco companies, they still ought to take great affront at a tax policy expressly designed to discriminate against the use of a legal product.

This discrimination cannot be justified on the basis of tobacco's alleged costs to society, because no other product is subject to such a test.
If such a test were applied widely, the nightly news could be subject to a special tax.

This discrimination cannot be justified on the basis of personal health because, again, no other product is subject to such a test and, in any event, that should be a personal decision.

A tax on tobacco at any level is government-sanctioned economic discrimination justified only on the basis of political whim and expediency.

Even if one could somehow justify a higher tobacco tax, there is no justification for a higher overall tax burden.

If Congress raises the tobacco tax, then some other tax should be reduced commensurately. At 18.8 percent of gross domestic product, the federal tax burden is already again above the modern historical average, and it is expected to increase in coming years even with the extension of the 2001 and 2003 tax cuts.

Congress should be looking for ways to cut taxes, not to raise them. The historical average tax share should be regarded as a dangerous ceiling, not a target or a floor.

The SCHIP reauthorization bill is a bad bill all around. It's far too expensive. It's a big next step toward national health insurance. It requires a big increase in taxes that are already too high. And the tax hike in question shows that the sad congressional addiction to the nico-tax is undiminished.

JD Foster is the Norman B. Ture senior fellow in the economics of fiscal policy at The Heritage Foundation (