What's Wrong with Increasing the Federal Tax on Cigarettes?

    WINSTON-SALEM, N.C., July 24 /PRNewswire-FirstCall/ -- A 156 percent
 increase in the federal excise tax on cigarettes approved by the Senate
 Finance Committee is being billed by some as a "win-win" situation: it will
 give free health coverage to millions, and it will force some smokers to
 quit smoking. "What could be wrong with that?" advocates ask.
     Here's what's wrong with it.
      - Most of the people paying the tax make less than the people getting the
        free government health care.  The median household income of an
        American smoker is about $35,000.  Yet people eligible for the free
        insurance could make up to $82,000.  Why should lower-income people pay
        for free insurance for middle- or upper-middle-class earners?
      - When the higher tax rate drives some smokers to quit smoking, the
        revenue generated by the tax declines.  The Heritage Foundation
        estimates that an ADDITIONAL 22 million Americans would need to take up
        smoking in the next 10 years to fund the free health insurance.
        (Perhaps the public service ads for THAT strategy might have Harry and
        Louise saying, "Honey, quit smoking - it would be good for you."  "Nah,
        I'll keep smoking - it's good for the kids.")
      - Cigarette sales volume has declined approximately 20 percent in the
        last decade, but health care spending has gone up by about 95 percent.
        Anyone want to do the math that proves that funding a rising cost with
        a declining income source isn't good fiscal policy?
      - Why should private employers continue to offer health insurance when
        their employees can get it free from the government?  The median U.S.
        household income is $46,500 - well below the income needed to qualify
        for the new insurance entitlement program.   Many private employers
        will leap at the chance to get out of the cost and administrative
        headache of providing benefits to their employees since those benefits
        would be available from the government.
      - The very same Congress that will be voting on the tax increase is
        simultaneously considering regulation that would enable the government
        to make cigarettes taste like "lard," according to one supporter of
        that bill.  The goal would be to make cigarettes so unappealing to
        consumers that it would force people to quit smoking.   So then who's
        going to pay for the free insurance?
      - The insurance program giveth and it taketh away.  Since the increase in
        the federal tax will drive down cigarette volume, the states will lose
        an estimated $6 billion in revenue from their own excise taxes and
        settlement payments from the cigarette manufacturers.  Every state has
        a projected expectation of income from their state excise tax factored
        into future budget years.  Can Congress spell "shortfall?"
     If Congress wants government-run health care to benefit an estimated 60
 percent of all children, it owes them an honest, long-term, sustainable
 source of revenue to pay for it. To do otherwise is commonly known as "bait
 and switch."
     ABOUT US
     Reynolds American Inc. ( RAI) is the parent company of R.J.
 Reynolds Tobacco Company; Conwood Company, LLC; Santa Fe Natural Tobacco
 Company, Inc; and R.J. Reynolds Global Products, Inc.
      - R.J. Reynolds Tobacco Company, the second-largest U.S. tobacco company,
        manufactures about one of every three cigarettes sold in the country.
        The company's brands include six of the 10 best-selling U.S. brands:
        Camel, Kool, Pall Mall, Winston, Salem and Doral.
      - Conwood Company, LLC is the nation's second-largest manufacturer of
        smokeless tobacco products.  Its leading brands are Kodiak, Grizzly and
        Levi Garrett.  Conwood also sells and distributes a variety of tobacco
        products manufactured by Lane, Limited, including Winchester and
        Captain Black little cigars, and Bugler roll-your-own tobacco.
      - Santa Fe Natural Tobacco Company, Inc. manufactures Natural American
        Spirit cigarettes and other additive-free tobacco products.
      - R.J. Reynolds Global Products, Inc. manufactures, sells and distributes
        American-blend cigarettes and other tobacco products to a variety of
        customers worldwide.
     Copies of RAI's news releases, annual reports, SEC filings and other
 financial materials are available at http://www.ReynoldsAmerican.com.
 
 

SOURCE Reynolds American Inc..