Wired reports on the Democrats plan to add $35 billion in new spending for children’s health insurance by dramatically raising federal excise taxes on tobacco products. The problem with this plan is that it makes no economic sense — they won’t be able to raise the money projected, and furthermore they only will be able to sustain the funding for five years.
Funding anything with tobacco excise taxes is a bad idea — because it isn’t a stable funding source. If you raise the price of cigarettes, more people will quit smoking. If you raise the price of luxury items like cigars (the current bill increases the maximum federal tax on cigars by over 20,000% to up to $10 a cigar) then people will stop buying cigars. For example, I’ll smoke at most a few cigars a month, no more than 1 per week. If the amount of tax pushes the price of cigars up to where even the cheapest cigars are north of $15 a cigar, I won’t smoke them at all. Instead of contributing a few dollars to the federal budget a year in excise taxes, it’ll be zero. Multiply that by the thousands or millions of causal cigar smokers, and it’s clear that the government simply can’t count on raising $35 billion solely on the backs of smokers.
By 2012, Congress either has to raise taxes elsewhere or the program dies. Either outcome is bad. It’s the sort of voodoo math that Congress gets away with all the time — pretending that they’re doing something to help by creating another program they can’t fund.
If Congress wants to fund children’s healthcare, that money should come out of the general fund and should be matched by commensurate reductions in discretionary spending. Spending a few million per district on pork-barrel projects should be a lesser priority than covering the insurance gap for children, right?
Except for Congress, it doesn’t work that way. They want to have their pork and eat it too — and meanwhile the American taxpayer gets stuck with the bill.
UPDATE: I wonder how many uninsured children could get healthcare instead of Charlie Rangel getting a $2 million dollar taxpayer-funded shrine to himself in New York?