Cigarette and Tobacco Products tax

Approximately 26. 5 billion packs of cigarettes are sold in the United States every year. That equates to 840 packs per second. Currently, smoking Americans pay 24 cents federal tax on every pack of cigarettes they buy. The Senate voted Friday, June 27, 1997 to raise cigarette taxes by 20 cents per pack. The additional taxes will be used to finance a new healthcare program for Americas 5 million uninsured children. The President rolled out his tax-cut plan today, June 30, 1997. Mr. Clintons plan also raises cigarette taxes by 20 cents per pack.

The proceeds from his proposed tax increase would also fund childrens health programs. However, as pointed out by CQ Staff writer Alissa J. Rubin in the June 23, 1997 issue of Congressional Quarterly, not all the proceeds raised by this tax will go to fund childrens health programs. The proposed tax increase on cigarettes is expected to raise approximately $15 billion over a five year time period. According to the Senate Finance Committees version of this tax proposal, about one half of that amount will go into block grants to the states for childrens health care.

Nearly $3. 5 billion would go to reducing the airline ticket taxes on international flights. Another $800 million would boost the capital ains tax break for real estate, and $3 billion dollars would be used to increase the number of working poor families who would be eligible for the $500 per child tax credit. 2 The burning economic issue concerning the proposed cigarette taxes is not the amount of the tax, but the idea that the government is slipping this tax rease into a tax-cut package. The senate is trying to finance an $85 billion tax- cut over the next five years.

The tax-cut would not be possible without being able to off-set the anticipated airline and capitol gains taxes with the money generated from the cigarette tax increase. The government lso wants to fund child healthcare programs, yet they cannot fund these block programs without a tax increase. During the period of 1972-95, the Legislature increased the Cigarette tax rate three times. Washingtons own tax is the highest at 81. 5 cents per pack. In 1972, Cigarette and Tobacco Products tax collections totaled $232 million.

By end of 1997, they should reach $593 million, yielding a 3. 8 percent average annual growth rate. For the 1992-1997 period, however, the average annual growth rate is expected to remain virtually flat, at 0. 4 percent. Almost all of the growth in this revenue source stems from ate increases. Because of decreasing consumption, the underlying base has gradually eroded. In fact, during the period of 1983-95, the base has decreased at 2. 1 percent average annual rate. Health concerns, price increases, and changing social attitudes have contributed to the decline in consumption.

Yet still estimates show that unless teen smoking rates are cut immediately, more than 5 million young people under age 18 who are alive today will die from a smoking-related disease. These 3 deaths could result in almost $200 billion in future health care costs and about 64 million years of life lost or the youth of this nation. More than 5 million children living today will die prematurely because of the decision they will make as adolescents, the decision to smoke cigarettes.

In 1994, 48 million adults 18 years of age and older (25. million men, 22. 7 million women) were current smokers in the United States. Smoking among adults decreases dramatically from 42% in 1965 to 26% in 1994. During this period, smoking among the adult male population declined from 52% to 28%, adult female smoking declined from 34% to 23%. Smoking foes say higher taxes on cigarettes are justified by the costs incurred by government in aying for smoking-related illnesses. But government already collects about 5 billion more in cigarette taxes than it is estimated to incur in such costs.

The new cigarette tax, aimed at providing health care to persons too poor to buy their own insurance, would fall most heavily on the poor and disadvantaged. One reason economic theory suggests selective excise taxes generally are not desirable is that they distort individual choices among goods and services in the market and interfere with efficient resource allocation. A cigarette tax, may be desirable if it compensates for burdens that smokers impose on others or ecause smokers make their smoking decision without adequate information to access the health costs of smoking .

In fact , the choice of a tax on tobacco to finance health care may have been motivated by 4 both of these links between smoking and poor health. If smokers generate additional health costs, some of which nonsmokers pay, why not impose a tax on smokers to offset the burden they impose on nonsmokers? And if smokers make inadequate risk assessments, shouldnt they be discouraged from smoking? Each Year, according to federal warnings, tobacco use in the United states kills more than 400,000 eople and runs up $50 billion in health care costs. Even so, 47 million adults still light up.

That conclusion comes from a state-by-state report from the Centers for Disease Control and Prevention, which also found: Eight of the 10 states with the lowest cigarette taxes; Virginia, Kentucky, North Carolina, South Carolina, Wyoming, Tennessee, Indiana and West Virginia have higher than average rates of adult smoking. Similarly, seven of the 10 places with the highest taxes on cigarettes, Washington State, the District of Columbia, Hawaii, Arizona, Massachusetts, Connecticut and Minnesota, have lower than average smoking rates.

Nevada has the highest prevalence of adult smokers (30. percent) and Utah the lowest (15. 1 percent). Cigarette taxes range from 81. 5 cents per pack in Washington State to 2. 5 cents in Virginia. Eight states and the District of Columbia dont tax smokeless tobacco. Our opinion as to how the problem can best be solved is to reduce the amount of the $85 billion tax-cut to $70 billion over the next five years. The $15 5 billion not cut in this tax package could be used to fund the four programs (i. e. child healthcare, airline taxes, capital gains tax break, and the $500 per child tax credit) that would have been funded by the igarette tax increase.

In doing this, we do not finance a tax-cut with a tax increase. The following taxes are expected to be cut when the tax plan is finally settled by late July (Senate version): Education (through scholarship tax credit) Five year Cost – $32. 5 billion Capital gains (reduce tax to reflect increases in inflation) Five Year Cost – $3. 3 billion Estate tax relief (for individuals with small business) Five Year Cost – $6. 5 billion Individual Retirement Accounts – (Expanded and will allow for contributions to later be withdrawn tax free) Five Year Cost – $3. 3 billion

Many in government have complained that the tax-cut package is slanted toward the wealthy. In a June 19, 1997 interview printed in the Wall Street Journal , President Clinton acknowledges the slant toward the rich, The distribution pattern of any tax plan will look somewhat skewed to upper-income people if there is any kind of capital gains tax and estate tax relief in it. But it was the price of a [budget] agreement. In conclusion, we feel that the tax increase should not be hid or tied up in a tax-cut program. Reducing the overall amount of the tax-cuts will lessen the need for the tax increase on those who smoke.

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