Friday, February 06, 2009

Making the poor pay their own SCHIP 

I got a very interesting email from the American Cancer Society last night, celebrating the passing of the SCHIP bill and, to fund it, a $1 per pack increase in cigarette taxes. "The increase will prevent more than 900,000 smoking-related deaths, deter nearly 1.9 million children from smoking, and encourage 1.4 million adults to quit," says the email from CEO Dr. John Seffrin.

The Tax Foundation points out, however, that of all the ways to fund SCHIP, the cigarette tax is the most regressive. If SCHIP was paid out of individual income tax increases, the average family in the bottom 20% of the income distribution would pay $7; the tobacco tax would collect $249 on average from the same family.

As to discouraging youth smoking, the Tax Foundation points out that many kids only smoke a few cigarettes a day because of the cost; their demand for cigarettes tends to be inelastic so that the tax will not be a large factor in deterring experimentation. And Viscusi and Hakes [2008] find that higher taxes do not operate on the decision of whether or not to smoke; higher taxes only lead to a decision to consume fewer cigarettes by people who already smoke.

So an ineffective tax from the ACS' view is celebrated while imposing most of its costs on the poor. Heckuva job, Seffrin! If you really want to stop smoking, prohibit cigarettes. But since government is a business partner of Big Tobacco, I'm not holding my breath.

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