One of the surest ways to create a budget deficit is to assume that a government health care program can be funded solely by a cigarette tax. That’s because health care costs rise faster than inflation, while cigarette consumption falls over time, reducing cigarette tax revenue. That leads to a progressively larger gap between cigarette tax revenue and spending on the government program it was originally earmarked to finance.
That’s true of the federal SCHIP health insurance program, whose expansion was recently vetoed by President Bush, partly for these reasons.
It’s also true for many state health care spending programs. David Reinhard has an interesting column in The Oregonian on a ballot proposition on the Oregon ballot, which would enshrine into the state constitution an entitlement to a new government health insurance program. He explains that, although it would initially be financed with cigarette tax revenue, it would inevitably lead either to budget deficits, or tax increases on non-smokers, in the future.
The Heritage Foundation explains how the bill to expand the federal SCHIP program is based on smoke and mirrors and would lead to higher deficits. Robert Novak also describes how the bill would lead to deficits in the future. As Heritage notes, it would also violate Congressional budget rules.