President Obama Signs Children’s Health
Insurance and Federal Tobacco Tax Increase Into Law
February 5, 2009 - President Obama
signed legislation on February 4 that will continue health
coverage to 7 million uninsured children through the State
Children’s Health Insurance Program (SCHIP) and allow an
additional 4 million to sign up for coverage. SCHIP was
created more than a decade ago to help children in families
with incomes that were too high to qualify for Medicaid and
too low to afford private coverage. The new
children’s health bill calls for spending an additional
$32.8 billion on SCHIP. To cover the increase in spending,
the bill would boost the federal excise tax on a pack of
cigarettes by 62 cents, to $1.01 a pack. Under the newly
signed law, taxes will increase not only on cigarettes, but
on cigar products as well. Little cigars will now be taxed
at $1.01 per pack, and cigarillos and large cigars will have
a tax increase from $.05 to $.40. President
Obama called the move a first step toward fulfilling a
campaign pledge to provide health insurance for all
Americans. Tobacco stocks did not register
much change after news of the bill’s passage broke, as many
investors had been gearing themselves up for the change
since late last year.
Citgroup indicated in a recent note that
the moist smokeless tobacco sector, where taxes will also
rise, will gain as a category because the tax there is still
relatively low. Among makers of smokeless tobacco are
Altria’s newly purchased UST, Inc., which sells brands
including Copenhagen and Skoal; and Reynolds American’s
Conwood Company, LLC, which sells products including Kodiak
and Grizzly. Citigroup also noted that the
tax increases will pressure cigars, which could become more
expensive for consumers and could lose some of their tax
advantage over cigarettes. The American Lung
Association of Colorado noted, “…this substantial increase
in the federal cigarette tax will help curb youth smoking
rates. Each ten percent increase in the price of a pack of
cigarettes reduces youth smoking by about seven percent.
This legislation also wisely increases taxes on other
tobacco products to encourage smokers to quit tobacco use
and not simply switch to other less expensive products.”
According to the American Cancer Society, Eastern Division,
this will bring the approximate cost of a pack of cigarettes
in New York to $7.50. In New York City, the average price
will be $9.00.
Sources: Dow Jones, Associated
Press, Citigroup, American Cancer Society, American Lung
Association of Colorado. |
