Dems view tobacco taxes as a likely source of children's health funding

WASHINGTON -- The nation's 45 million smokers will probably help pay for the spending increase that Democrats want for children's health insurance, say analysts familiar with deliberations on Capitol Hill.

Democratic lawmakers will push for $50 billion in new funding for the State Children's Health Insurance Program over the next five years. To pay for that increase, they must find new sources of revenue or cut existing programs.

Powerful trade groups representing doctors, hospitals and insurers have united around the idea of taxing tobacco. Democratic leaders have not said to what extent they will agree.

Still, the question now is not whether the tobacco tax will go up -- but how much it will go up, said Ron Pollack, executive director of Families USA, an advocacy group that promotes universal health insurance.

"I've every reason to believe an increase in the tobacco tax will be part of the way expanded health insurance for children is paid for," Pollack said.

Pollack said his assessment was based on "frequent and relatively recent conversations" with the committees that have jurisdiction over SCHIP. Democrats from the House and the Senate are expected to unveil their respective SCHIP proposals soon.

Federal, state tax

The federal tax on tobacco stands at 39 cents per pack, and it generated about $7.2 billion in 2005. The money goes into the general fund of the U.S. Treasury.

States also tax cigarettes. The rates range from $2.58 cents a pack in New Jersey to 7 cents a pack in South Carolina.

Tobacco companies oppose another tax increase on their product, but it's unclear whether the industry has enough clout to fend this one off. The ban on unlimited contributions to the political parties, called soft money, has resulted in a significant drop-off in campaign contributions from the industry.

The Center for Responsive Politics reports that total campaign contributions from the tobacco industry fell from $9.2 million in the 2002 election cycle to $3.5 million in last year's cycle. The center also ranks industries when it comes to campaign contributions; since 1996, tobacco has fallen from 26th in the center's rankings to 62nd.

Most of the industry's contributions in recent elections -- about three quarters -- have gone to Republicans.

Bill Phelps, spokesman for Philip Morris USA, the nation's largest tobacco company, said tax increases have already led to an 80 percent increase in the cost of a pack of cigarettes since 1999. The average cost of a pack now stands at $4.13, though those costs vary dramatically from state to state.

"We feel this trend is unfair to adult smokers as well as to tobacco retailers," Phelps said.

He said an excise tax increase may have unintended consequences because sales of cigarettes have been declining at about 2 percent a year while the cost of medical services provided through SCHIP have grown at least 4 percent annually.

"Relying on the cigarette excise tax to fund an important government program such as SCHIP will create long-term funding shortfalls," Phelps said.

But a tax increase on cigarettes would also have its benefits, said supporters of a tobacco tax increase.

For example, the American Medical Association, the trade group for doctors, said that for each 10 percent increase in the price of cigarettes, youth smoking is reduced by 7 percent, and overall consumption by 4 percent.

"The higher the tax, the more substantial the future public health benefit," said Dr. Ronald M. Davis, president of the American Medical Association. "Fewer smokers means fewer people with strokes, heart attacks, cancer, and other smoking-related health conditions."

The Centers for Disease Control and Prevention says that about 440,000 people in the United States die prematurely each year as a result of illnesses attributable to smoking.

Pollack acknowledged that support for the tobacco tax increase from health providers is not entirely selfless. With more revenue coming into the treasury, there's less pressure to make cuts to their funding.

For example, doctors face a 10 percent cut in their reimbursement when they treat seniors and the disabled through Medicare next year. Hospitals claim that changes set to kick in later this year would trim overall Medicare payments by $25 billion over five years.

Also, insurers face potential cuts in their government pay. An advisory commission to Congress has recommended that the government's payments to insurers should equal those provided through traditional Medicare -- where doctors and other providers are paid a set fee for providing a particular service.

The Congressional Budget Office has estimated that eliminating the difference in the payment rates would save about $54 billion over the next five years.

"We have supported the tobacco tax purely because the funds raised will be used for SCHIP," said Mohit Ghose, a spokesman for American's Health Insurance Plans. "We have also pointed out repeatedly that we do not believe there should be money taken from one government program for the Medicare population in order to provide funding for SCHIP. We believe that it is an unfair trade-off and we've worked diligently to find other funding sources."

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On the Net:

State Cigarette Excise Taxes:

http://www.ncsl.org/programs/health/Cigarette.htm ranking