July 11, 2007

Well, someone is smoking something, and this time they're inhaling big time. I refer to the agreement anmong the politicos of both parties in the Senate Finance Committee to increase the tobacco tax from 39 cents per pack to $1 in order to finance a $35 billion increase in SCHIP spending over five years.

First, the tax will never raise the claimed revenues because of increased incentives for internet sales of cigarettes from Indian reservations and from overseas, and old-fashioned smuggling through innumerable ports. Second, the existing tax of 39 cents will not be collected on such sales designed to evade the tax, so that the net effect in terms of increased revenues actually could be negative; and the same principle applies to the state taxes now collected on tobacco sales. The states will demand compensation from the feds for the lost revenues, so that the net federal take will be even smaller. Third, to the extent that smokers bear the economic burden of the tax in the form of higher prices for cigarettes actually subject to the tax, the old Beltway game of Free Lunch will manifest itself; so why not expand SCHIP even more, requiring more new revenues from somewhere, and ad infinitum? Thus we will find ourselves enveloped in yet another Beltway perpetual-motion machine.

This proposal takes from smokers---as a crude generalization, lower- and lower-middle income individuals---in order to expand SCHIP to the middle class and above. So much for "fairness." And precisely why should smokers be the ones paying for others' health care? That is far from obvious, in that the health problems attendant upon smoking are not contagious, and smokers as a group already provide a large fiscal subsidy to everyone else through the Social Security system precisely because they die sooner and thus collect Social Security benefits for fewer years.

So let us hear no more balderdash about public health and the children and all the other nostrums beloved in the Beltway. This is pure wealth redistribution from a group politically unpopular to the middle class, notwithstanding all the highminded rhetoric. That expansion of SCHIP is medical schalami schlice schocialism on the move, with all of the perversities that inexorably will follow is not likely to prove salutary. So go ahead: Applaud the hit on Big Tobacco all you want. The future destruction we will wreak will be ours to treasure.

Posted by Benjamin Zycher at July 11, 2007 08:51 AM

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