Child insurance bill raises cigarette tax

WASHINGTON -- President Barack Obama signed legislation today to more than double the federal cigarette tax to pay for an expansion of health insurance for poor children.

Tobacco companies hurt by declining smoking rates expect the 62-cent increase -- to $1.01 per pack -- to further reduce cigarette sales after it takes effect April 1.

The major tax increase on cigarettes, smokeless tobacco and cigars will fund a $32.8 billion expansion of the State Children's Health Insurance Program, providing coverage to an additional 4.1 million children.

"In a decent society, there are certain obligations that are not subject to tradeoffs or negotiation -- health care for our children is one of those obligations," Obama said at a signing ceremony at the White House.

It's not yet clear how hard the tax increase will hit tobacco companies.

Fitch Ratings, a bond-rating firm, said it expects a 4 percent to 7 percent drop in cigarette sales this year.

David Sutton, spokesman for Philip Morris USA in Richmond, said it was difficult to say how the tax increase would affect the company's bottom line.

Tommy Payne, spokesman for Reynolds American Inc., a tobacco company in Winston-Salem, N.C., said the company expects industrywide volume declines of 6 percent to 8 percent.

The federal increase comes after a series of cigarette-tax increases by dozens of states during the past five years. The trend has driven up cigarette prices and is expected to continue.

So far this year, 16 states -- including Virginia -- have considered legislation to increase cigarette taxes, according to the National Conference of State Legislatures. Yesterday, the Virginia Senate's Finance Committee rejected Gov. Timothy M. Kaine's proposal to double the tax to 60 cents per pack.

Increases are expected this year in states that historically have opposed raising cigarette taxes, including South Carolina, which has the nation's lowest state cigarette tax of 7 cents per pack, and Mississippi, third-lowest at 18 cents per pack.

Richard Cauchi, health program director for the conference of state legislatures, said it's difficult to say how many of those proposed increases will pass.

In 2007, tobacco-tax increases passed in 11 states. Last year, 20 states debated increases, but only two passed. They were unusually large -- a $1 increase in Massachusetts and $1.25 in New York. At $2.75 a pack, New York has the country's highest cigarette taxes.

Two factors have the potential to spark another wave of tax increases this year, tobacco analysts said. The prolonged economic downturn has created budget deficits in nearly every state. Lawmakers generally face less resistance to increasing "sin taxes" than income taxes or sales taxes paid by everyone.

Job losses have swelled the ranks of the uninsured, and cigarette taxes often are pegged to pay for expansions of government health-insurance programs.

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