I suppose this makes the proposed tax increase to pay for the State Children's Health Insurance Program slightly more progressive, but it's not what I had in mind: While almost all of the SCHIP-dedicated revenue would come from a 61-cent-a-pack increase in the federal cigarette tax, some would come from a huge increase in the federal tax on cigars. Currently limited to five cents a cigar, the tax would skyrocket to as much as $10 a stick, equal to 53 percent of the manufacturer's or importer's sale price.
Personally, I've never paid $20 for a cigar, and I imagine those who do buy such cigars could more easily afford this 20,000 percent tax hike than the average cigarette smoker can afford the proposed 156 percent increase in the cigarette tax. (Not only are cigarette smokers less affluent, but they typically buy cigarettes much more often than cigar smokers buy cigars.) Still, even smokers of less expensive cigars would be hit by big price increases: A $2 cigar would cost $3 or so, a $4 cigar would be $6, etc. The St. Petersburg Times reports that cigarmakers are "in a panic."
The political rationale for picking on smokers is that it's easy. But from a public policy perspective, assuming SCHIP is either a sound investment benefiting the general public or an urgent matter of social justice, it should be funded by a broad-based tax, not one that singles out people with politically incorrect consumption habits.
The Heritage Foundation, which also highlights the regressivity of the SCHIP financing plan, criticizes the program's expansion, noting that it has been extended beyond the original target of poor children who are not quite poor enough to be covered by Medicaid and seems destined to become a new health care entitlement that crowds out private coverage and further strains the federal budget. A few weeks ago Robert Novak warned that SCHIP expansion is part of a stage-by-stage transition to completely socialized health care.
[via The Stogie Guys]