[UPDATE 2: Text of the bill can be downloaded here. Provisions on the tax increases begin on page 288.]
[UPDATE: George Edmonson reports there was one small victory in House negotiations, as the “floor tax” was eliminated. The “floor tax†– also known as the “store killer†for the likeliness that it would bankrupt many B&Ms – was a proposed one-time tax on every cigar a store has in inventory.]
Today the U.S. House of Representatives is expected to vote and pass an expansion of the State Children’s Health Insurance Program (SCHIP) that includes a massive tax increase on cigars and other tobacco products, even though as of late last night the text of the bill was still not available. The Senate is expected to pass the bill on Thursday.
President Bush has promised to veto the bill pledging his support for SCHIP, but opposing the Democrats’ expansion of the program to wealthier families. “Instead of expanding SCHIP beyond its original scope, we should return it to its original focus, and that is helping poor children, those who are most in need,†Bush said last week.
Under the Senate proposal, various tobacco taxes funding the SCHIP expansion are being increased by at least 256%. While as of Friday multiple congressional staffers told StogieGuys’ own George Edmonson that they were still negotiating the House bill and trying to reduce the tax cap on cigars, it is believed the House bill will contain the same tax increases.
Under the plan, federal cigarette taxes were increased from 31 cents per pack to $1.00. The 256% increase was then applied to other forms of tobacco such as “large cigars.†The federal excise taxes on large cigars – like the ones we review here at StogieGuys.com – go from 20.719% with a cap of 5 cents per cigar to 53.13% of the manufacturer’s price with a cap of $3. For a cigar that retails for $7.50, the new tax would increase the price of a box of 25 cigars by about $100. The tobacco tax increases are set to go into effect January 1, 2008.
MoveOn.org used Bush’s veto opposition to blast Republicans, writing: “Stop the Republicans from blocking health care for kids.†But such statements are an inaccurate portrayal of Bush and congressional Republicans’ position. While some outside of Congress have called for SCHIP to be entirely eliminated, that is not the position of Bush or the majority of Republicans that oppose the SCHIP expansion.
Outside critics calling for the elimination of SCHIP cite that the program’s regulations drive up the price of private insurance for all, create incentives for lower-middle class families not to climb the economic ladder in an effort to keep SCHIP subsidies, and cause huge costs that “insure four previously uninsured Americans for the price of ten.†However persuasive such points may be, these are not the arguments made by Bush.
Bush’s veto threat is only in opposition to expanding the coverage from families of four earning as much as $72,000 per year, to families of four earning $83,000 per year. In fact, President Bush has said he approves expanding SCHIP to cover well-off families, but only if the states enroll 95 percent of those lower-income children first.
While the debate continues over SCHIP, there is almost no talk about the use of tobacco taxes as a source of funding.
Stogie Guys Analysis
Here at StogieGuys.com, we’ve always pointed out that if a government program is really in the public’s best interest, it would not be necessary to tax a small, already discriminated-against minority such as smokers. Additionally, there has been relatively little discussion about the fact that a tobacco tax funding health insurance creates a perverse government interest in ensuring that there are enough people smoking to maintain funding of the program.
With the veto threat pending, we will continue to watch this story. It is believed that the Senate might pass the bill with a veto-proof majority, but it is unlikely that SCHIP supporters in the House can muster the 2/3 majority needed to override a presidential veto.
–Patrick S
Tags: cigars