SCHIP Expansion Bill Will Devastate Roll Your Own!
Although cigarette sales in the U.S. have decreased 18% since 2000, there has been an increase in sales and use of Other Tobacco Products (OTP); moist snuff, Roll Your Own (RYO) and small cigars. Federal Excise Tax (FET) on tobacco products netted the Treasury over $7 Billion in 20071 yet there is a growing fear in Washington that smokers will continue to seek alternatives to heavily taxed cigarettes.
In a misguided attempt to raise the additional $33 Billion to fund the SCHIP Expansion for the next 4-1/2 years, cigarette taxes are set to increase $0.62 per pack. Since this 158% FET Increase is likely to drive even more smokers to seek lower cost alternatives, the U.S. Congress has decided to 'level the playing field' by increasing the FET on Roll Your Own tobacco and small cigars OVER 2,000%.
Logic seems to be in short supply for the lawmakers who are seeking additional funds by adding another tax on a low income group who are already struggling to pay the average combined state & federal taxes of Over $2.50 per cigarette pack.
The vast majority of those who have switched to RYO, small cigars and other lower taxed tobacco products have done so simply because They Can't Afford Cigarettes that cost over $5 per pack!
Many consumers who choose Roll Your Own due to it's lower costs won't be able to afford RYO once the additional $24 per pound Tax takes effect on April 1st!
The State Children's Health Insurance Program (SCHIP) is a federal-state program that offers health care benefits to children in families that cannot afford private insurance, yet earn too much to qualify for Medicaid. SCHIP was established in 1997 and funded primarily by Federal Excise taxes on cigarettes ($0.34 per pack), cigars (18% of wholesale price), pipe and rolling tobacco ($0.96 per pound) and other tobacco product taxes. SCHIP's original purpose is commendable, compassionate and one could argue - necessary.
Federal Excise Tax rates on all tobacco products were raised approximately 14% in mid-2002 to cover the amendments to SCHIP passed in 2001. In 2007 an expanded SCHIP bill which included tax increases for cigarettes to $1 per pack and rolling tobacco to $8.89 per pound was passed by Congress, only to be vetoed twice by President George W. Bush. An attempt by Congress to override the veto in 2008 fell just 15 votes short and Federal funding of the current SCHIP program was extended to March 31 2009.
When the expanded SCHIP bill - H.R. 2 - was passed by the U.S. House of Representatives on Jan 14, 2009 Excise Taxes were set to raise approximately 156% on cigarettes, cigars, pipe tobacco and most other tobacco products to pay for the estimated $33 Billion spending increase.
However, in a last minute rewrite of page 273 of the 285 page document, the FET on Roll Your Own tobacco was changed from the $1.0969 to $8.89 per pound increase in the 2007 bill to a new rate of $24.62 per pound!
A floor tax provision was also added, meaning that all tobacco products except cigars in inventory at manufacturers, distributors, tobacconists, convenience stores, etc. will immediately be subject to the new tax rate on April 1, 2009 when the law takes effect.
To illustrate how desperate the House Democrats were to push the bill through without proper consideration, the 285 page bill was introduced on Tuesday the 13th and referred to the Ways and Means Committee (as usual). It was then rushed to the floor (by House Resolution) and after only one hour for comments, was passed by a roll-call vote 289-139 on Wednesday afternoon.
Congressman Dave Camp (R-MI) in his floor statement made these points.2
"Let me first state the obvious problem with this bill: a children’s health program should not be used to cover adults, non-citizens, potentially illegal immigrants, and those making $80,000 per year.
There is another problem with the bill—one the majority hopes you ignore: this bill blatantly attempts to hide the true cost to American taxpayers. It is irresponsible and untenable to fund a children’s health program with a revenue stream that is fast drying up. Increasing the cigarette tax, regardless of your support for such an idea, does not, will not and cannot cover the cost of this program...
The Democrats want you to ignore the fact that the percentage of Americans who smoke has been dropping for decades. But research and logic both show that raising the prices of cigarettes will lead to less smoking and fewer tax dollars coming into the federal treasury.
The only way for this funding scheme to work is if the Democrats find 22.4 million new smokers."
Shortly after the House passed H.R. 2, President-elect Obama said in an E-mailed statement:
"I'm so pleased that Democrats and Republicans in the House of Representatives came together to provide health insurance to over ten million children whose families have been hurt most by this downturn. This coverage is critical, it is fully paid for, and I hope that the Senate acts with the same sense of urgency so that it can be one of the first measures I sign into law when I am President."
Part of Obama's campaign of "Change We Need" was that under his administration 95% of working Americans would see their taxes cut and "No family making less than $250,000 will see their taxes increase". Apparently he can't wait to violate his pledge to the American people.
SCHIP Expansion? Just Say No!
I do not oppose renewing the current SCHIP program, although ideally I'd like to see some tightening of it's eligibility requirements (adults can currently receive health care through SCHIP in 14 states and in 4 states there are more adults than children in the program). It is the ever expanding coverage and estimated $33 billion tax hike over the next 4-1/2 years funded solely by increased taxes on tobacco products that I take issue with.
During this period of a deepening national recession, continued job losses in nearly every sector and a financial crisis rivaling the Great Depression, one must question the validity of expanding a supplemental Medicaid program originally intended solely for the uninsured children of the working poor. Adding eligibility to families who already have private health insurance coverage and those with incomes of $84,000 or more (a family of 4 with income up to 4 times the poverty level would qualify for SCHIP under the new guidelines) is totally outside the original intent of the program.
You might see me as some crack-pot with an agenda (after all, the goal of this web site is to promote Roll Your Own, not see it destroyed by the single largest Tax Increase in U.S. History), so don't take my word for it, read George Will's scathing criticism of the current SCHIP bill in his op-ed piece Fiscal responsibility? Obama already is breaking the bank
All tobacco taxes are regressive 3 (the tax falls disproportionately on low-income individuals) and these proposed triple-digit and higher tobacco tax increases to fund a Federal entitlement program on the backs of a low-income minority is shameful, and once again I'm not the only one saying so. I urge you to read the following Tax Foundation report Funding S-CHIP with Federal Cigarette Tax Increase is Poor Tax Policy
Another worthwhile read is the Heritage Foundation article which exposes the serious flaws buried in last year's SCHIP bill and outlines the Top 10 Changes for Congress to Consider
We held out slim hope that if these outrageous tax increases on the working poor were brought to light and debated on the floor of the Senate they might consider altering the increase of Roll Your Own tobacco taxes to the same 156% rate currently proposed for pipe tobacco ($2.8311 per pound), cigarettes, large cigars and smokeless tobacco products.
Sadly that did not occur, the Senate version actually increased every tobacco tax slightly above the House version to add funds for dental coverage.
This new Public Law No: 111-3 will raise RYO tobacco taxes nearly 2200% from $1.10/lb to $24.78/lb while raising cigarette taxes 158% ($0.62/pack) and most other tobacco products at the same 158%.
Very few Americans realize the devastation that will likely occur to the small players in the tobacco industry, distribution and retail chain. Many jobs will be lost and businesses, especially those catering to RYO consumers, will likely be forced into bankruptcy in wake of the 2,200% Excise Tax increase and concurrent implementation of a floor tax on April 1, 2009.
Many Americans have no sympathy for smokers, it's easy to feel superior to and vilify those who appear to be slaves to their vices, but even the most cold hearted anti-smoker out there would probably admit in private that a 2,200% tax increase is going too far! I'm sure that if a Tax Increase of this magnitude were to be applied to Beer and Wine rather than small cigars and Roll Your Own tobacco, there would be a public outcry and rebellion far beyond anything seen in modern American history.
If you'd like to add your comments on this issue, join the discussion in the RYO Revolution Forum
1 Alcohol and Tobacco Tax and Trade Bureau report
2 Congressman Dave Camp (R-MI) SCHIP Floor Statement
3 Smoking Decreases as Income Increases
