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1 1 (December 14, 2007)

handle is hein.crs/crsmthabekl0001 and id is 1 raw text is: Order Code RS22681 December 14, 2007 CRS Report for Congress The Cigarette Tax Increase to Finance SCHIP Jane G. Gravelle Senior Specialist in Economic Policy Government and Finance Division Summary H.R. 976 increased cigarette taxes from 39 cents to $1.00 to finance the State Children's Health Insurance Program (SCHIP), raising about $7.6 billion a year, but costing state and local governments over $1 billion. The original House-passed bill (H.R. 3162) had smaller increases, but the Senate proposal was adopted. A justification is to discourage teenage smoking, but this effect is probably small; a reservation is that the burden falls heavily on low-income individuals. Taxes on other tobacco products are also increased, although cigarette taxes account for most tobacco revenues. The President vetoed the proposal on October 3, the House failed to override the veto and a new bill, H.R. 3963 passed the House and Senate, with no changes in the cigarette tax, but changes in spending rules, and the President vetoed that version on December 12. Introduction This report discusses proposals to raise the cigarette tax to help pay for re- authorization of the State Children's Health Insurance Program. This report describes current taxes, discusses potential revenue gains, and discusses some of the basic issues surrounding a tax increase. It also briefly discusses the tax increase on cigars. Tax Changes and Revenue Effects The vast majority of tobacco taxes are on cigarettes, which account for 90% of tobacco sales (totaled $88 billion in 2005).1 Federal cigarette taxes are $0.39 per pack, accounting for 97% of federal tobacco tax revenue. There is a 4 cent tax on a package of 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 of almost 5 cents per cigar. Per ounce, the tax is 7 cents on pipe tobacco; 1 cent on chewing tobacco; 4 cents on snuff; and 7 cents on pipe and roll-your-own tobacco. There are also taxes on cigarette paper and cigarette tubes. 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