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. Mr. GIBBONS. Thank you, Senator Chafee. Mr. Duncan. Mr. DUNCAN. Thank you, Mr. Chairman. I welcome our very able colleague to the committee. Senator Chafee, various Governors, even in the nonsmoking States, have indicated to us that this is a matter that should be reserved for the State governments because it has been a sort of exclusive tax with which they have raised considerable State reve nue. With the Federal Government now reducing outlays to the State governments, the Governors think that we are being a little bit inconsistent, and may I say that I don't consume, or produce, or have an interest in tobacco, but I think the States do have a legitimate claim in their assertion that it should be left to them. You have probably read one of the reports from the Governors that we have gone about as far as we should go here. Some States actually, I understood, yesterday passed a law increasing their tax at the State level providing that we didn't increase it at the Federal level. I think that we certainly should give serious consideration to the State governments. What are your thoughts? Senator CHAFEE. Well, I can understand their reasoning, but I think it is important to recall that the tax already exists for the Federal Government, that is the 16 cents. We are running a $200 billion deficit and for us to decrease taxes at this time seems to me very strange. We need, I believe, every nickle we can get our hands on because what we do in the Federal Government has such a direct relationship to the prosperity of their communities and States. We must get these deficits down and thus, I believe, the interest rates will come even more rapidly, and that will be of benefit to the States. Mr. DUNCAN. Would that same rationale extend to all other things that the States tax? Senator CHAFEE. No; but I think a case can be made where we have the tax; we are getting the revenue, and we should not give it up at this time. Mr. DUNCAN. It will be a new tax because the law that you and I voted for and agreed to in the conference and everything else, we said it would drop to 8 and that is the agreement we made at the time. I think you were on the same conference. Senator CHAFEE. Yes, I was. Mr. DUNCAN. Now we are backing up on what we promised the industry, but I was just wondering about other things, like in the early sixties we repealed excise taxes on a lot of items, luxury automobiles, clothing, jewelry, and those things—— Senator CHAFEE. Telephones. Mr. DUNCAN. We repealed those back then. I would be interested in whether you want to extend into those products now. Senator CHAFEE. Well, as you recall, Mr. Duncan, I believe it was last year, maybe it was 2 years before that, that we increased the tax on distilled spirits, which is frequently looked on as a prerogative left to the States, but that didn't slow us down. We increased the tax even though the States said, "That is an area where we traditionally get our revenues and please don't increase it.' Mr. DUNCAN. Of course, smoking—all surveys have shown that it has a regressive effect the more you tax-taxing is more prevalent among lower income groups than among those of higher income groups. Would you favor putting an additional tax on luxury automobiles, jewelry, and clothing, and things of that nature? You are hitting at the lower income people with this and telling them we are going to tax your product that you might enjoy sitting on the porch or by the fireplace and puffing a pipe, or something, or smoking a cigarette, but let the other things go. We did increase the distilled spirits tax and I think adequately; we increased it all they could possibly stand. I think their sales are down 2 percent, the tobacco tax sales are down 2 percent. Like I said, I don't consume or produce it, but I have a lot of poor farmers who have nine-tenths of an acre and that is where they get the cash to send their children to school. So I think there is a matter of fairness that you don't want to hit at a product that the poor people use and produce. We have a few big farmers, tobacco farmers, but most of them are small people, and I don't think we are being consistent if we don't look at some other things. But I do thank you and I certainly respect your opinion on this matter. I know it is a good one. Your folks, most of them, are rich in your State, but if you are talking about big automobiles or something, you might have a little different aspect. Thank you, Mr. Chairman. Mr. GIBBONS. Fine. Mr. Rangel. Mr. RANGEL. Thank you, Mr. Chairman. Senator, I don't know what your response was to Mr. Duncan. I will reframe the question, though. Do you believe that this cigarette tax would be a deterrent to the poor smokers as opposed to the affluent smoker who could really care less as to what the price is of a pack of cigarettes? Senator CHAFEE. The poorer individual economically would be affected obviously more by an excise tax than the richer person is. Mr. RANGEL. So it is not exactly fair to say that you are discouraging smoking. Really, you are just singling out the group of people that you want to discourage because, for those who can afford cigarettes and use gasoline, any increase in taxes doesn't make a differ ence. You are really penalizing those who can't afford to pay the additional cost. That is the way I look at it, even though I have no problem with your objectives. I just think that it is wrong to use the Tax Code to tell people what is best for them whether they like it or not. Senator CHAFEE. They also are the people who create a drain on the Medicare fund. There is no question there is a correlation between those who smoke and the drain they make on the Medicare fund, which everybody pays for. Mr. RANGEL. I am not arguing with you on that, but you are singling out who is going to pay for that Medicare cost. As relates to the more affluent smoker, you are not deterring him from smoking. In any event, this earmarking, I think, is rather dangerous for our committee to get involved in. Why don't you earmark it directly for lung cancer research where you would know where the money is going? I really think, since the administration is cutting back on so many programs, that if we could just take taxes and earmark them, we wouldn't need the administration, not that I would miss them that much, I like your concept, but I don't have any control over Medicare. They are still going to do what they want or don't want to do no matter how much money is raised for them. Why don't you earmark it for what you are really concerned about, lung cancer? Senator CHAFEE. I think this is earmarking it because by increasing the tax and decreasing the consumption of cigarettes, you are having an absolute direct correlation in the reduction of lung cancer. No question about it. Every statistic- Mr. RANGEL. I thought we got over that hurdle that this would be an unfair way to control citizens' behavior. Now I am on the second part of it, that you are putting the money into a Medicare trust fund. If you have talked with Dr. Davis, you would know that giving her more money doesn't mean that we will have any control on how it is used. Senator CHAFEE. If it went directly into the Medicare Trust Fund, that would be a direct Mr. RANGEL. We spend what's in the trust fund. We are spending money. It is just like saying that we are raising money to reduce the deficit. You are not reducing it as long as you have spending programs. Senator CHAFEE. Well, there are other options you could look at. To me, this seemed to be the most direct way of building up the fund that is paying for those individuals who are drawing more from the fund because they smoke. That is the correlation I am making. Mr. RANGEL. You are stretching it a bit, but I suspect that for most anything that we consume we should have a tax on which would go to the Medicare Trust Fund. I can hardly think of anything that you can eat that they haven't researched and found out that it causes cancer or some type of illness. I really think that we could-would you have the liquor tax go to the Medicare trust fund. Alcoholism, and drunk driving, and the related cost of the injuries on the highway, and what happens to our kids are all directly related to overconsumption of alcohol? I am the chairman of the Select Narcotics Committee. There is a relationship between drug abuse, and crime, and a variety of other things. Would you suggest that we should tax and direct the money directly into some type of a fund that would provide for care for these people? Senator CHAFEE. Well, I wouldn't argue with that; sure. Mr. RANGEL. Good. Well, you and I can get together. I don't mind raping the system if we go all that way, but I hate to start just with cigarette taxes since the only guy that you are hurting is the fellow that can't afford the extra 16 cents, in my opinion. Senator CHAFEE. I think it is important to remember that 8 cents of the original 16 cents is already there. The tax is there now. They are paying it. We all voted for it. Mr. RANGEL. Just because we stuck them once doesn't mean that we have to continuously do so. You know, we said it was temporary. We should have some credibility and have them believe we mean what we say. In any event, I would like to work with you to see whether we can either expand the concept or leave it alone. Thank you, Mr. Chairman. Mr. GIBBONS. Mr. Frenzel. Mr. FRENZEL. Thank you, Mr. Chairman, and I thank the Senator for coming here. We appreciate his testimony. My State is one of those which has passed an increased cigarette tax with an added proviso that if the Federal Government does not extend the 8 cents, it will add another 8 cents at the expiration date. I assume there are a number of other States that have done this, and I wonder if the Senator wants to comment on that. Senator CHAFEE. I think that our first concern here has to be the Federal Government. The deficits we are running are so horrendous that to yield revenue at this particular time, revenue that is there, and I am talking about the 8 cents that falls off in October, would be a great mistake, whether it is cigarettes or not cigarettes. I am not persuaded by the administration's argument that that is a new tax. The tax is there. Sure, any Governor would be glad to pick up the revenue, and again getting back to the point Mr. Rangel was making, one way or another, these people are going to pay it. If it is not levied by the Federal Government, the States seem to be stepping in and picking it up. The argument here isn't over whether the poor person is going to have to pay more for a pack of cigarettes. It seems clear that he is going to continue to have to pay a 16-cent tax, plus whatever he normally will in his State. Mr. FRENZEL. One way or another, it looks that way to me, too. My State is telling me the money is on the table, either we will take it and we are running a balanced budget, or you take it, and you are $200 billion in the red. At least out my way the decision gets a lot easier. Thank you for your testimony. Senator CHAFEE. Thank you. Mr. GIBBONS. Mr. Ford. Mr. FORD. Thank you very much, Mr. Chairman. I really don't have any questions for the Senator. I would like to thank you for making an appearance over here. We are concerned about this particular issue, excise taxes on tobacco. It is something that we certainly will be looking at. Thank you very much for your testimony and thank you for coming over. Senator CHAFEE. Thank you. Mr. GIBBONS. Mr. Donnelly? Mr. DONNELLY. No questions. Mr. COYNE. No questions. Mr. GIBBONS. Thank you, Senator, for coming in and helping us with our problems. Senator CHAFEE. Thank you very much, Mr. Chairman. Mr. GIBBONS. Next we have Hon. Thomas Tauke, a Member of Congress from the State of Iowa. STATEMENT OF HON. THOMAS J. TAUKE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA, AND RANKING MINORITY MEMBER, SUBCOMMITTEE ON RETIREMENT INCOME AND EMPLOYMENT, SELECT COMMITTEE ON AGING Mr. TAUKE. Thank you. Mr. Chairman and Members of Congress, I have a statement which I will submit for the record. I also have a request from Congressman Roybal, to submit a statement for the record. Mr. DUNCAN. Congressman Quillen would like to file a statement. Mr. GIBBONS. Without objection. Mr. TAUKE. Mr. Chairman and Members of Congress, thank you for allowing me to testify this morning on behalf of H.R. 1594, which is a bill Congressman Henry Waxman and I introduced to raise the Federal excise tax on cigarettes to 32 cents a pack. We now have 15 cosponsors for the legislation which is 1 of 10 bills introduced in the House and two in the Senate to raise the cigarette excise tax. This legislation would earmark 75 percent of the funds raised for the 32 cent tax to the health insurance trust fund. Like Senator Chafee, we believe that earmarking the money to the health insurance trust fund makes some sense. He earmarks 50 percent, we earmark 75 percent. On Friday the CBO provided me with the latest net revenue estimates for a 32 cent increase in the excise tax, and I would like to make those part of the record at the present time. [The information follows:] U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, June 12, 1985. Hon. THOMAS J. TAUKE, House of Representatives, Washington, DC. DEAR CONGRESSMAN: Thank you for your request concerning federal excise taxes on cigarettes. The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) temporarily increased the excise tax on cigarettes from 8 cents per pack to its present rate of 16 cents per pack over the period January 1, 1983 to September 30, 1985. Under current law the tax on cigarettes will return to 8 cents per pack on October 1, 1985. The enclosed Table 1 contains estimates for fiscal years 1986 through 1990 of the revenue effects of increasing the tax rate of 16 cents or 32 cents per pack. Table 2 displays aggregate net cigarette tax revenues that would be collected under both the current law rate and the proposed higher rates. These net revenue increases show the effect on revenues after accounting for lower income taxes due to higher indirect businesss taxes. If you wish further details on this estimate, we will be pleased to provide them. |