House passage of H.R. 2, the Repealing the Job-Killing Health Care Law Act, starts the bidding in what is certain to take years to resolve the health care crisis. Attention to health care reform excise taxes will only intensify as judicial and legislative action unfolds in challenges to the Patient Protection and Affordable Care Act (P.L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152). In this contentious environment, it is worthwhile to point out that:
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Just as important to health care costs is the sorry state of American health habits. Chronic health problems that result from self-neglect and abuse are sure to capture more and more attention. With this in mind, isn't it reasonable to expect a call for higher taxes on alcohol and tobacco? Shouldn't the states help drive improved consumer behavior by providing incentives to curb consumption of these products?
Few would argue that poor habits do not account in large measure to spiraling health insurance costs, creating greater challenges to health care access. In turn, many insist that America's health habit "sins" have in effect precipitated the health care reform movement in general and last year's massive legislation in particular. Indeed, the new law has already spawned a tanning services tax, which became effective July 1 2010. The growing incidence of melanoma and other skin cancers in America clearly justifies this measure. But no other "sin" taxes play a part in the 2010 bills. That said, legislative movement in various states is percolating with an eye toward taxing junk food and soft drinks. These ideas are well conceived and advised.
Until now, the most prominent argument to justify taxing cigarettes has been this commodity's inelastic demand, thereby indicating a positive revenue effect from tax increases. But beyond economic benefits to government coffers, reduced cigarette smoking caused by state tax increases is recognized as a compelling public health benefit. In fact, per capita cigarette sales have indeed declined over the years because of incrementally higher taxation.
Over the past 30 years or so, the average state cigarette tax has increased from 13 cents to $1.07 in 2007. (See The effect of cigarette excise tax differentials; cigarette smuggling and demand for cigarettes by Cagdas Sirin and Alfonso Sanchez-Penalver (2008).) Notwithstanding chronically distressed economic conditions plaguing the states, and notwithstanding the potential for long distance commercial and cross-border smuggling, even higher cigarette taxes are needed to slow the economic fallout derived from cigarette smoking.
Tax policy is formed in large measure by aspirations to positively influence behavior. This principle has always been a key element of "sin" taxes, but it has never been more important than it is right now.
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