Thursday, January 15, 2009



The U.S. House of Representatives voted yesterday to expand a health-insurance for children and low-income families (SCHIP), which President George W. Bush twice vetoed. The House bill seeks to enroll four million additional children in SCHIP, at a projected cost of $32.3 billion over the next 4 1/2 years. A 61-cent increase in the federal cigarette tax, as well as increases in other tobacco taxes, will supposedly fully fund the expanded program.

I hate to get all Econ 101 on my readers again, but there ain't no way that SCHIP is only going to cost $32 billion over the next 4+ years. Back in 2003-4, President Bush, under pressure from Democrats to demonstrate his "compassionate conservatism" in an election year, threw his weight behind a Medicare drug benefit. The program's cost accelerated like an Indy car in a straightaway, and Democrats then criticized the president for cost overruns! No wonder he vetoed SCHIP, twice.

What's truly disturbing about the House SCHIP bill is the fact that program's expansion is to be almost entirely funded by a 61-cent increase in the federal cigarette tax, as well as increases in other tobacco taxes.

First of all, tobacco use has been steadily declining in recent years; thus, an elected representative is a confirmed ass when he or she assumes that an increase in tobacco taxes will result in increased tobacco use.

In addition, cigarettes are already heavily taxed, and each subsequent tax increase encourages criminal and black market tobacco sales. Don't believe me? Google-search "New York cigarette black market" and see what you find out. (In addition to informative news, you'll find a lot of economically-ignorant souls who claim - sans reliable facts and figures - that the illegal cigarette trade has Big Tobacco's thumbprints all over it.)

Now, I do not begrudge those who wish to ensure that poor kids have access to quality health care. That's a noble wish, indeed. However, those noble souls should be honest about how much their wishin'-and-wantin' will cost -- at least two times what they're now saying.

The same folks should also learn themselves enough on basic economics 'til they figure out that you cannot fully fund a budget-busting program with a tax that is not only increasingly confiscatory, but is also designed to discourage use/consumption of the "thing" being taxed to fund said program!

Again, SCHIP is a good -- utopian? -- idea on paper, but it will prove to be a true budget-buster if it's enacted. When, three or four years down the road, SCHIP's budget ain't $32 billion-and-change over the next 4 1/2 years but $20-30 billion A year, folks are gonna say ... "President George W. Bush was on to something."

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