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Democrats Blowing Smoke on SCHIP Funding

January 13, 2009

Democrats have decided to pay for their proposal for a massive SCHIP expansion, which dilutes the focus on poor children, with tens of billions of dollars in additional tobacco taxes.
Short of finding at least 22.4 million new smokers (the number required to adequately fund SCHIP) Democrats will be forced to either kick millions of children off of health insurance or raise taxes on all of us by tens of billions of dollars.
It is irresponsible to fund a children’s health program, particularly one targeted at vulnerable children, with a declining revenue stream.  We cannot treat our nation’s children like a house that we abandon when we can no longer afford to make payments.

Revenue to Fund Expansion Will Soon Disappear, Causing All of Us to Pay More:
• The Democrats are proposing a permanent tobacco tax increase to pay for a temporary SCHIP eligibility expansion.
• But here’s the problem…the percentage of Americans who smoke has been dropping for decades.  And research and logic both show that raising the prices of cigarettes will lead to less smoking.

• According to an analysis by the Heritage Foundation, the Democrats would need to recruit 22.4 million new smokers by 2017 to keep funding their Medicaid and SCHIP expansion.

• At the same time the funding base will decline, SCHIP costs will increase exponentially.  SCHIP costs increased 10 percent in 2007 and 18 percent in 2008. CBO predicts that SCHIP spending will more than double under the Democrat’s proposal.  Couple that with a drop in revenue from decreased smoking and the gap between program spending and revenue becomes staggering—a gap Democrats will ask the American taxpayer to fill.

Democrats will Raise Taxes on Poor and Low Income Families:
• Tobacco taxes fall hardest on the working poor — the very people SCHIP was originally designed to help. According to the Campaign for Tobacco-Free Kids, 28.8 percent of adults who are below the poverty level smoke, compared to 20.3 percent of other adults.

• President Elect Obama promised that no one making less than $250,000 per year would see their taxes go up.  This legislation breaks that promise.

• According to the Centers for Disease Control, other groups disproportionately likely to smoke include: adults with a GED (46%), Native Americans (32%), adults without a high school diploma (27%), all blacks (23%) including black men (28%), and young adults ages 18-24 (24%).

• In contrast, individuals with undergraduate degrees (only 10% of whom smoke) or graduate degrees (7%) would be far less likely to be affected.  Given such data, it is hard to imagine a more regressive policy, disproportionately targeting such disadvantaged groups for higher taxes. Source:
Democrats Add Tax Increases on Top of Tax Increases:

• An additional 61 cents per pack to finance SCHIP expansion may not sound like much, but it adds up.  Under the Democrats’ proposal, a working class family with two adult smokers would face hundreds of dollars per year in additional federal tobacco taxes.

• That tax is in addition to state and local tobacco taxes, which are often hefty. These taxes are as high as $3.66 per pack in Chicago and $4.25 per pack in New York City. That adds up to thousands of dollars of government excise taxes per active smoker.

Is This Any Way to Stimulate the Economy?:
• The Majority has time and time again argued that we need to put more money in the hands of low-income families, presumably because they will spend it.  With this bill they can spend their stimulus payments by paying more taxes.

• Speaker Pelosi suggested the recovery rebates would “help create 500,000 jobs” by the end of 2008.  She suggested such relief was especially needed by “financially pressed Americans — putting money into the economy,” supported by the fact that “economists estimate that each dollar…leads to $1.26 in economic growth.” Americans might rightly wonder if dollars paid to financially pressed Americans are so stimulative, but wouldn’t tax hikes on these same financially pressed individuals — taking money out of their pockets — do exactly the opposite?

• Driving up spending in the form of higher taxes will only stimulate an expansion of government and contract the rest of the economy.