The most disgraceful feature of today’s SCHIP vote involves the plan to pay for the legislation by taxing the poor. The Democrats deny that their tobacco tax will have this effect, but they are lying. Here’s the lead author of a 2007 study:
Further tax hikes [on tobacco] would place an undue burden on the poor–those hit the hardest by increased costs.
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 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, most poor smokers will continue to buy tobacco regardless of its price. This means that they will end up footing the bill for the expansion of the SCHIP program.
But the cruelest irony is that a lot of SCHIP money goes to adults and kids from families who aren’t close to poverty level. So, in effect, the tobacco tax forces the poor to buy insurance for middle class types.