Some States May Be Deep in SCHIP

A new report from the Tax Foundation finds that Senator Gordon Smith’s (R-OR) proposal to raise the federal excise tax on cigarettes would cause a majority of states to lose big. Sen. Smith’s intention, to increase funding for the State Children’s Health Insurance Program (SCHIP) through raising cigarette taxes by $1 a pack, would actually hurt the households it purports to help. The report finds that 30 states will face a net negative fiscal impact. Not surprisingly, Smith’s state, Oregon, is not among them. While trying to help the poor, Smith and co. neglected to internalize the fact that smokers have a very large presence among those below the poverty line, thus directly burdening the exact group the legislation is supposed to benefit. The Tax Foundation even concludes that increased levies on income would be more effective:

If SCHIP expansion were funded by an across-the-board increase in federal income taxes, low-income families would be much better off as a whole, and the net fiscal redistribution from high-income states to low-income states would be greater.

The solution is crystal clear: abandon Sen. Smith’s legislation and increase tobacco subsidies. Right? For more from Reason on the government’s affinity for taxing tobacco check out this, this, and this.