One of the most disgraceful features of the congressional initiative to expand SCHIP involves the plan to pay for it by taxing the poor. The architects of this strategy have consistently denied that their proposed tobacco tax will have this effect, but a new study shows they shouldn’t be trusted. Its lead author puts it as follows:
Further tax hikes [on tobacco] would place an undue burden on the poor–those hit the hardest by increased costs.
Conducted by researchers at the University of California, the study shows that elasticity of demand for tobacco products depends largely on socioeconomic status. As prices go up, better off smokers tend to quit. However, for smokers further down the socioeconomic ladder, price doesn’t have the same effect:
Recent tax hikes corresponded with a trend in which the relatively wealthy quit smoking at a greater rate than their poorer counterparts.
In other words, poor people will continue to buy tobacco regardless of its price. Thus, they will end up paying the $50 billion price tag for the proposed expansion of the SCHIP program.
As I have pointed out here, a lot of SCHIP money goes to adults and kids from families who aren’t even close to poverty level. So, the proposed tobacco tax will end up making poor people pay for the health insurance of the middle class.
Comments 2
The problem with using a tobacco tax to fund health care (or any other vice tax to find any social program) has several dimensions:
If the tax reduces consumption (as it is intended to), then the program ends up underfunded. If the tax is collected in full, then we’re funding one program on the backs of citizens who will require more health care services, increasing system costs.
If some portion of the tax were earmarked for smoking cessation programs, that would be a good thing. Massachusetts had some great successes in using the tobacco tax for big-budget anti-smoking ads (in the early days of the increased tobacco tax), and some of those ads have now been picked up in other markets. Eventually, though, the Commonwealth was unable to keep all that money in the tobacco control program, and it seeped into other programs more or less connected to tobacco control or the health issues related to tobacco use.
Bottom line: The law of unintended consequences is clearly in effect here, and in an ideal world legislators should be more forthright in assessing the costs of current and proposed social programs, and in assigning responsibility for assuming those costs.
Posted 11 Sep 2007 at 9:08 am ¶I would be far less critical of the “baccy tax” concept if connected to cessation programs. Such a tax might even do some good. But, of course, this particular tax proposal is just a gimmick.
Sadly, the people who now run Congress have no intention of being “forthright,” which is presumably why they are even less popular with the public than their predecessors.
Posted 11 Sep 2007 at 2:14 pm ¶Post a Comment