Bad habits

Congress, like many state legislatures, seems to think it has found a magic money source in order to fully fund SCHIP: expanding the cigarette tax.

The heart and lung associations and the American Cancer Society have long supported an increase in the cigarette tax. They do so because they have evidence that shows that an increase in the cost per pack results in a corresponding decrease in smoking and a decrease in smoking is a Good Thing.

Their position makes sense. Cigarette taxes can be effective as a tool of social policy or of health policy — as a disincentive to destructive behavior.

What doesn’t make sense is to try to use cigarette taxes as a tool of fiscal policy, as a reliable source of revenue. Trying to do so puts you up against all those studies the heart association and cancer societies cite. A cigarette tax hike can provide a short-term boost in revenue, but it also produces a longer-term decrease in the thing it draws revenue from, so over time it’s not a reliable or dependable source of revenue.

Once that revenue begins shrinking, the larger danger is that we could see something like what has happened with the lottery. States now have an interest, a stake, in lots of people playing the lottery. The casual players — those who can afford it as an amusing diversion paid for with disposable income — don’t buy enough tickets to fund everything the lottery is designed to fund. So states are now invested in the idea that hard-core players — people who play too much, who spend income on the lottery that they need for other things — keep playing, and that more people are lured into becoming hard-core players. And so states have gotten into the business of promoting waste and irresponsibility. Those “dollar and a dream” lottery ads have become so commonplace that we’ve become inured to how perverse this practice is, but it really is insane when you’ve got the government promoting vice over virtue.

Dedicating cigarette taxes to an ongoing, perpetual expense like children’s health care might work as a temporary solution. But without some long term plan to take its place it will create an ongoing, perpetual dependence, thus in turn creating a government interest in a thriving, undiminished market for cigarettes. Not a good idea. That dependence on cigarette taxes can be addicting.

SCHIP is a good investment and a worthy program. If a higher cigarette tax is the only way to fund it right now, then that’s probably worth doing. But this is something that Congress is going to need to revisit within the next few years so that SCHIP has a sustainable, non-magical funding source.