Paying for Health Reform: Suddenly, a $2-a-Pack Cigarette Tax Is Taken Seriously

May 09, 1993|By VIVECA NOVAK

Don't be surprised to see ultra-cool Joe Camel looking a little stressed behind his Ray-Bans in coming months. And his retired counterpart in the beer world, Spuds Mackenzie, may take on the alarmed look of a stray about to be snared by the dogcatcher.

Sin taxes are on the block again -- only now call them health taxes. Higher levies on tobacco are a likely source of revenue for President Clinton's health care reform package, and alcohol could be dragged into the flames as well. And the industries aren't at all happy.

It's already been a tough year for tobacco. First, secondhand smoke was declared a known human carcinogen, then the Clintons banned smoking in the White House. And the Centers for Disease Control found that in 1991, for the first time in 25 years, the percentage of Americans who smoke did not drop, prompting agency officials to call for a tax hike to help reverse the trend.

Suddenly, the prospect of a $2-a-pack federal cigarette tax (it's now 24 cents) is taken seriously; a year ago it wouldn't have passed the laugh test. The industry may have to measure victory by how low it can keep the increase.

After all, there's the potential for a fair chunk of change. A tax of $2 per pack would gain about $90 billion over five years. A slight rise in the tax on hard liquor and a large one for wine and beer would raise $4 billion a year. The sums would be a big help in offsetting the $30 to $90 billion estimated annual cost of meeting health reform goals.

And, as Office of Management and Budget Director Leon Panetta has said, higher taxes "would not only raise revenue, they would discourage unhealthy behavior."

There's an obvious conflict in wanting the revenue and also wanting to discourage behavior that produces it. But heavy tobacco taxes in Canada have led to both a significant decline in smoking and a big pot of new money. At least, if the money dries up, it will be because people are smoking and drinking less, leading to lower health care costs, tax advocates say.

Last year, smoking was responsible for 434,000 deaths, with another 53,000 from secondhand smoke. Medical costs of treating smoking-related illnesses such as lung cancer and heart disease run about $24 billion a year. Alcohol accounts for more than 100,000 deaths a year, as well as high rates of cardiovascular and other diseases.

Almost every poll shows increasing these taxes is popular with the public. But they are clearly regressive, meaning they hit the poor harder than the well-off. Large tax hikes will undoubtedly cost jobs, too, in the tobacco and alcohol industries.

And the industries, which are among the biggest donors of campaign money, won't give up easily. Up to now, they've had remarkable success. Federal cigarette taxes remained at 1951 levels until 1982, when they were doubled. Liquor taxes went up in 1985 for the first time since 1951. Beer and wine saw no federal tax hikes from 1951 until 1990, when budget summiteers doubled the beer tax to 33 cents per six-pack and raised taxes on a bottle of wine from 3 cents to 21 cents and the levy on a bottle of liquor from $2 to $2.14. Cigarette taxes went up 50 percent then, too.

Tobacco and alcohol firms are working with other excise tax opponents in the Coalition Against Regressive Taxation (CART). Whenever lawmakers consider raising excise taxes, CART kicks into overdrive, churning out economic studies, sending radio feeds to the districts of key congressional committee members and flying consultants to talk to editorial boards nationwide.

Excise tax foes have traditionally marshaled an unusual group of allies, including the congressional Black Caucus and the National Governors Association, which argues that excise taxes are the domain of the states. But this time the terrain could change. "We don't have policy" on higher excise taxes this year, said NGA spokeswoman Lisa Lackovic. "However this is going to relate to health care reform will determine our ultimate position."

The idea for a $2-a-pack cigarette tax came from the Advocacy Institute and the Coalition on Smoking OR Health, an alliance of the American Cancer Society, the American Lung Association and the American Heart Association. They've ready access to officials in charge of studying health care reform -- a far cry from the reception they got under George Bush.

In Congress, the joint powers of lawmakers from North Carolina, Virginia, Kentucky and other tobacco states, as well as those who don't like the tax's regressiveness, have kept taxes low. But the policy tide is obviously turning there, too. Sen. Bill Bradley, D-N.J., and Rep. Mike Andrews, D-Tex., members of the tax-writing Senate Finance and House Ways and Means committees, have introduced a bill to raise cigarette taxes to $1 per pack and increase them on other tobacco products, too. Most of the estimated $10 billion a year raised would be earmarked for health care.

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