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Mr. DORGAN. We want to thank the panel for your patience. You are the last panel in a long day of hearings, and the information which you have provided us will be very valuable as we evaluate these considerations.

The committee will stand in recess until 9 o'clock in the morning.

Whereupon, at 3:25 p.m., the committee adjourned, to reconvene at 9 a.m., Thursday, June 20, 1985.)

USER FEES, REVENUE PROPOSALS CONTAINED IN PRESIDENT REAGAN'S 1986 BUDGET, AND OTHER REVENUE MEASURES

THURSDAY, JUNE 20, 1985

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,

Washington, DC The committee met, pursuant to call, at 9:15 a.m., in room 1100, Longworth House Office Building, Hon. Sam Gibbons presiding.

Mr. GIBBONS. Good morning, ladies and gentlemen. The chairman is unavoidably detained, so we will get started. This is a continuation of yesterday's hearing.

I saw the Honorable Senator John Chafee; he was here—Mr. Chafee, you are recognized. STATEMENT OF HON. JOHN H. CHAFEE, A U.S. SENATOR FROM

THE STATE OF RHODE ISLAND Senator CHAFEE. Thank you very much, Mr. Chairman and members of the committee. I appreciate this opportunity to testify today on the excise taxes on cigarettes.

As we all know, the current tax of 16 cents will fall to 8 cents per package as of October 1, 1985. I believe it would be a mistake to allow the tax to fall. In fact, I have introduced legislation in the Senate which would increase the tax to 32 cents per package.

My legislation, S. 874, would continue the existing tax at 16 cents until January 1, 1986; and then increase it to 32 cents. The additional 16 cents would be earmarked to the Hospital Insurance Trust Fund, Part A of the Medicare Program.

This would be $4 billion a year.
The additional 16 cents would be given to the trust fund.

Congressman Tauke and Congressman Waxman have introduced legislation similar to mine and you will be hearing from them later.

Medical evidence of the incidence of tobacco-related diseases among users of this product demonstrates the correlation between smoking and increased health care costs. An increased and earmarked Federal excise tax on cigarettes is a tax imposed on tobacco users for the resulting excess health care costs they impose on the Hospital Insurance Trust Fund.

In other words, it is taxing those who cause an increased cost to the fund. According to the Coalition on Smoking or Health, in 1981, cigarette smoking accounted for $13 billion in medical care costs, and $25 billion in lost economic productivity. Cigarette smoking cost taxpayers $3.8 billion through the Medicare and Medicaid Programs.

Smokers clearly impose a burden on society. Their health care needs are subsidized by those who do not smoke. It is reasonable, therefore, to ask smokers to contribute additional funds toward the health care programs that are of assistance to smokers.

The recognition of the health care demands smokers make on health care programs is especially important when we look at the Medicare Program. The Hospital Insurance Trust Fund is still in trouble. It is not as bad as it seemed to be a while ago, but actuaries disagree as to the exact date of bankruptcy, and few will disagree with the proposition that measures need to be taken to ensure its long-term viability.

One needs only to look at the statistics of those who are growing older and the added withdrawal they will make in the fund. By the year 2000, only 16 years away, the number of people over age 65 in the United States will increase by 18 percent. Those over age 85 will double between now and the end of the century. These figures are nothing compared to what will happen in the next century. Moreover, they are probably conservative.

While an increased excise tax on tobacco, earmarked to the trust fund, may not ensure that the fund will remain solvent, it will certainly help.

An increasing excise tax on this product will also help discourage smoking. In the Tax Equity and Fiscal Responsibility Act, Congress doubled the excise tax on cigarettes from 8 cents to 16 cents for a 3-year period ending October 1, 1985.

In "Cigarette Taxation: Doing Good by Doing Well,” author Kenneth Warner stated that the doubling of the excise tax caused 144 million adult Americans to stop smoking and one-half of a million teenagers to stop or not start smoking. Among price-responsive young people, teenage smoking decreased by 14 percent. Adult smoking decreased by 4 percent. So there is a correlation between decreased smoking and the increase in the tax.

By helping to discourage smoking, an increased excise tax will help improve the overall health of the country. Cigarette smoking is the No. 1 preventable cause of death and disability in this country. Some 340,000 Americans die of smoking-related diseases annually. About 9 million people suffer from chronic bronchitis and emphysema due to smoking.

There are those who say that smoking is a decision each of us should make and that Congress should not meddle with it. However, there are some personal decisions which have a great impact on all of society-smoking falls into this category.

In these times of fiscal austerity, we must closely examine the health care costs imposed on taxpayers by tobacco users. I believe it is reasonable to ask those who smoke to help ensure the financial viability of the Medicare Program which is depended upon by so many elderly individuals.

So, Mr. Chairman, I first of all do hope we can continue the 16cent tax through the balance of this year; and then I would hope that one of these measures dealing with the increase to 32 cents would be considered and considered favorably.

Thank you.

[The prepared statement follows:] STATEMENT OF HON. JOHN H. CHAFEE, A U.S. SENATOR FROM THE STATE OF RHODE

ISLAND Thank you for the opportunity to testify today on excise taxes on cigarettes. As you know, the current tax of 16 cents will fall to 8 cents per package as of October 1, 1985. I believe it would be a mistake to allow the tax to fall. In fact, I have introduced legislation in the Senate which would increase the tax to 32 cents per package.

My legislation, S. 874, would continue the tax at 16 cents until January 1, 1986 and then increase it to 32 cents. The increase of 16 cents would be earmarked to the Hospital Insurance Trust Fund-Part A of the Medicare Program.

Medical evidence of the incidence of tobacco-related diseases among users of this product demonstrates the correlation between smoking and increased health care costs. An increased and earmarked Federal excise tax on cigarettes is a tax imposed on tobacco users for the resulting excess health care costs they impose on the Hospital Insurance Trust Fund.

According to the Coalition on Smoking or Health, in 1981 cigarette smoking accounted for $13 billion in medical care costs and $25 billion in lost economic productivity. Cigarette smoking cost tax-payers $3.8 billion through the Medicare and Medicaid programs.

Smokers clearly impose a burden on society. Their health care needs are subsidized by those who do not smoke. It is reasonable, therefore, to ask smokers to contribute additional funds toward the health care programs that are of assistance to them.

The recognition of the health care demands smokers make on health care programs is especially important when we look at the Medicare program. The Hospital Insurance Trust Fund is still in trouble. Although the actuaries disagree as to the exact projected date of the bankruptcy of the program, few will disagree with the proposition that measures need to be taken to ensure its long term viability.

By the year 2000, only 15 years away, the number of people over age 65 in the United States will increase by 18 percent. Those over age 85 will double. These fig. ures are nothing compared to what will happen in the next century; moreover, they are probably conservative. These statistics leave us with clear and unequivocal evidence of the need for prompt effective and above all careful action. We know what dragging our feet now will mean for the future of health care for the elderly-a bankrupt system.

While an increased excise tax on tobacco, earmarked to the Trust Fund, may not ensure that the fund will remain solvent, it will certainly help to increase the revenues flowing into the trust fund.

Legislation like mine and H.R. 1594, introduced by Congressman Tauke and Congressman Waxman, is needed to help stave off the possible bankruptcy of the Medicare Trust Fund until Congress can accomplish a reform of the Program. This reform must be one which will ensure high quality health care at a reasonable, affordable price. Such a reform cannot occur overnight, it will take time to develop. This legislation will help to give us that necessary time.

An increase excise tax on this product will also help discourage smoking. In the Tax Equity and Fiscal Responsibility Act (TEFRA), Congress doubled the excise tax on cigarettes from $.08 to $.16 for a three year period ending October 1, 1985. In “Cigarette Taxation: Doing Good by Doing Well," author Kenneth Warner stated that the doubling of the excise tax caused one and a quarter million adult Americans to stop smoking and one-half million teenagers to stop or not start smoking. Among price-responsive young people, teenage smoking decreased by 14 percent. Adult smoking decreased by 4 percent.

By helping to discourage smoking, an increased excise tax will help improve the overall health of the country. Cigarette smoking is the number one preventable cause of death and disability in this country. 340,000 die of smoking related diseases annually. Nine million people suffer from chronic bronchitis and emphysema due to smoking.

There are those who say that smoking is a decision each of us should make and that Congress should not be attempting to influence these decisions through an excise tax. However, there are some personal decisions which have a great impact on all of society-smoking falls into this category. It creates an increased demand on our health care system, much of which is subsidized by the federal government. All of us, whether we smoke or not, pay for the health care needs of smokers-either through insurance premiums or our taxes.

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