Obama's First Tax Increase


This week Congress plans to vote on a bill that would dramatically raise the federal cigarette tax and use the money to fund an expansion of the State Children's Health Insurance Program (SCHIP).  Congress approved similar bills in 2007 and 2008, but they were vetoed by President Bush in one of the few decisions he made during eight years in office that were both courageous and consistent with limited-government principles. (His attempts at Social Security and immigration reform are the two others that spring to mind; perhaps you can think of more.) Barack Obama, who will be president next week, is expected to sign the SCHIP bill, despite his avowed reluctance to raise taxes in the middle of a recession. SCHIP costs have risen and cigarette smoking has declined since the last two times around, so either the expansion will be more modest, the tax increase will be steeper, or more money will have to be found elsewhere (such as in our children's future earnings, if Congress decides that the uncovered SCHIP costs will barely be noticed in a budget deficit that has already exceeded $1 trillion and may be closer to $2 trillion after the stimulus package Obama is pushing).

In a June 2007 column I explained why the SCHIP expansion is inefficient, in many cases funding medical coverage for children who already have it, and unfair, relying on a discriminatory and highly regressive tax that is not justified by the cost smoking supposedly imposes on taxpayers. (Smoking actually seems to reduce government spending, even if the analysis is confined to health care programs.) Later that year Ron Bailey warned that expanding SCHIP is a step toward (even more) socialized medicine, and I argued that the federal government should leave decisions about subsidizing children's medical care to the states.