June 29, 2007

Many States' Poor Populations Lose If Cigarette Taxes Are Hiked to Pay for Health Insurance

30 States Are Losers in Senator Smith's Plan to Fund SCHIP with Cigarette Tax Hike

For more information, contact the press office at 202-464-6200.

full study online at  http://www.taxfoundation.org/publications/show/22453.html

Washington, D.C., June 28, 2007 - Most states will pay more in tax than they receive in federal spending from Senator Gordon Smith's proposal to expand federal health spending with money from a higher federal excise tax on cigarettes.

The five states that would come out furthest ahead are New Mexico, Alaska, Kansas, Arizona, and California. They combine comparatively low smoking rates with fairly large populations of households eligible for the State Children's Health Insurance Program (SCHIP).

The five states that would fare the worst are New Hampshire, Vermont, Missouri, Massachusetts, and Iowa. Iowa and Vermont have low levels of children in poverty and above-average cigarette consumption, while Missouri has a very high smoking rate.

The study is titled "A State-by-State Estimate of the Impact of SCHIP Expansion and a 156 Percent Cigarette Tax Hike," by Tax Foundation economist Gerald Prante. It is number 88 in the Tax Foundation Fiscal Fact series, on the web at www.taxfoundation.org/research/show/22453.html.

In economic terms, Senator Smith is suggesting that the federal government more than double its most "regressive" tax, that is, the tax that hits the poor hardest, from 39 cents per pack to $1. Perhaps to mitigate this hit on the poor, he suggests that the government spend the funds on one of its most "progressive" programs, that is, a program originally designed to funnel money to low-income households with children. However, because states make their own SCHIP policies, the poor in some states will face the higher cigarette tax but receive little in extra SCHIP spending.

"If SCHIP expansion were funded by an across-the-board increase in federal income taxes," said Prante, "low-income families would be much better off as a whole."

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The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

For more information, contact the press office at 202-464-6200.