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1 1 (June 19, 2007)

handle is hein.crs/crsmthabekk0001 and id is 1 raw text is: Order Code RS22681 June 19, 2007 s CRS Report for Congress The Cigarette Tax Increase to Finance SCHIP Jane G. Gravelle Senior Specialist in Economic Policy Government and Finance Division Summary The Senate Budget Resolution, S.Con.Res. 21, 110'h Congress, permits an increase in the cigarette tax to pay for the State Children's Health Insurance Program (SCHIP). Current federal taxes are 39 cents per pack, and taxes imposed at all levels of government account for about a third of the price of cigarettes. A 50 cent increase, for example, would raise nearly $7 billion a year, but would cost state and local governments about $1 billion. (An original proposal to raise the tax by 61 cents was not adopted, so the likelihood of a tax increase and its potential size is uncertain.) A justification for the tax is to discourage smoking, particularly by teenagers. Most evidence suggests there is likely to be a reduction, but that the response may be small. One reservation about the tax is that the burden falls heavily on low-income individuals. Introduction The Senate Budget Resolution, S.Con.Res. 21, 110'h Congress, allows the cigarette tax to be raised to help pay for re-authorization of the State Children's Health Insurance Program. An original proposal would have mandated a 61 cent tax increase per pack, but the resolution makes such a tax possible but not mandatory and does not set the level. This report describes current taxes, discusses potential revenue gains, and discusses some of the basic issues surrounding a tax increase. Current Federal Taxes on Tobacco Tobacco excise tax rates vary by tobacco product, but the vast majority of these taxes are on cigarettes, which account for 90% of sales of tobacco products, and totaled $88 billion in 2005.1 Federal cigarette taxes are $0.39 per pack, and account for 97% of federal tobacco tax revenue. There is a 4 cent tax on small cigars. Large cigars carry a tax of 20.719% of sales price, not to exceed $48.75 per 1,000 units, leading to a maximum tax 1 Standard and Poor's Industry Surveys: Alcoholic Beverages and Tobacco, November 30,2006. Congressional Research Service , The Library of Congress Prepared for Members and Committees of Congress