Increase cigarette tax to pay for children’s healthcare

One of the most widely supported principles of economics is that when the price of a product increases, so its consumption decreases. While there are exceptions to this rule, it holds true of most items – including cigarettes. Consequently, one of the most certain ways to reduce the consumption of cigarettes is to increase the real price for consumers. This primarily causes smokers to reduce their consumption slightly, but it also prompts more smokers to try to quit and some of them succeed. Tax revenue is always increased. The group that is most affected by the price of cigarettes is children. It has been estimated that about half of the sizeable reduction in the proportion of US youth who smoke over the past 10 years is due to the increase in the cost of cigarettes. So as a public health policy, increasing the tax on cigarettes is about as cost effective an intervention as one can find. It decreases cigarette consumption, prevents youth from becoming addicted to cigarettes, consequently reduces future healthcare costs, and actually earns vast amounts of additional revenue, rather than costing anything. The federal tax per pack of cigarettes has remained at 39 cents for 5 years and is actually a lower proportion of the cost of a pack then was the case prior to the first Surgeon General’s report on tobacco and health in 1964!

As mentioned in my previous post, the United States health insurance system is in crisis and among the innocent victims are children whose healthcare is not covered by insurance. The current safety net for such children is called the State Children’s Health Insurance Plan (SCHIP), and the current authorization for this program runs out in a couple of months – requiring passing of new legislation to reauthorize the program.

However, the federal government is currently trying to operate under the principal that legislation requiring new spending must simultaneously create or specify the source of new or additional funding to cover it. So just over a week ago a bipartisan Senate Finance Committee voted 17-4 for a bill to re-authorize and expand SCHIP and to pay for it by increasing the federal tax per pack of cigarettes by 61 cents (i.e. taking it to $1 per pack federal tax). Both Democratic and Republican Senators backed the proposal, describing it as a “win-win twofer” that funds healthcare for uninsured children and reduces healthcare costs by discouraging smoking. However, President Bush stated that he would veto the legislation because he felt it would transfer people from the private health insurance system over to “government run medicine” and would “entail a huge tax on the American people.”

So President Bush gets to stand up for the interests of the health insurance industry and the tobacco industry at the same time, while preventing uninsured sick kids from poor families accessing healthcare. Another excellent day’s work.

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I'd love to hear your thoughts on whether you think cigarette tax increases are a fairly good way to fund new healthcare initiatives, or if you think the President is right to veto this legislation.
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About the Author

MA, MAppSci, PhD

Dr. Jonathan Foulds is an expert in the field of tobacco addiction.