Smoke if you got 'em: The President's plan to pay for preschool with higher cigarette taxes

Apr 11, 2013

Yesterday, the White House released its budget proposal for the coming fiscal year, and we got our first detailed look at how the President intends to pay for his plan to make preschool available to all four year olds in the country. Basically, he's going to make smokers pay for it.

First, some bullet points: 

  • $77 billion - The total cost of expanding early childhood programs through 2023.
  • $78 billion - The estimated revenues from higher tobacco taxes in the same time period.
  • $66 billion - The amount that will go to the "preschool for all" portion of the proposal.The money will be sent directly to states that develop their own preschool programs.
  • 94 cents per pack - That's how much extra smokers will pay. It's nearly double today's tax. 

It's not clear yet whether this proposal can actually make it through Congress. House Republicans have repeatedly said they won't support any plan that raises taxes. But Obama has successfully used this cigarette tax gambit before. In 2009, he signed into law a 61 cent per pack increase in cigarette taxes to help pay for an expansion of the Children's Health Insurance Program (CHIP).

It's easy to see why the White House would put forward the proposal. Higher cigarette taxes discourage a behavior that's harmful to society while creating funds for programs that could be beneficial to society. 

But I see a couple of potential problems behind the idea to use cigarette taxes to fund preschool. For one, cigarette taxes disproportionately affect the poor. The Centers for Disease control estimates that nearly 29 percent of adults living in poverty are smokers, compared to only 18 percent of adults above the poverty line. This means that higher cigarette taxes technically break one of President Obama's core campaign promises: to not raise taxes on low- or middle-income families. 

The other problem with using cigarette taxes to fund early childhood programs is that higher cigarette taxes lead to less smoking. In many ways, this is one of the great benefits of the plan, which the Obama administration has been quick to highlight. After cigarette taxes went up in 2009, about 700,000 people in the United States quit smoking, according to the CDC. And those who continued smoking did so less frequently. 

From a public health standpoint, that's a good thing. From a budget standpoint, it creates some problems. You can see the effects in the White House's own budget tables. The White House estimates that annual revenue from the increased cigarette taxes starts out at about $9.8 billion. By 2023, that same tax is only expected to raise $6 billion, a 39 percent drop in revenues over eight years. In fact, the only way the President's plan pays for early childhood through 2023 is by raising much more than is needed in the first few years. By 2023, the White House estimates its cigarette taxes will bring in only about half of what's needed to fund the early childhood programs on an annual basis. 

I realize this is getting a bit technical, but the point is that cigarette taxes don't seem like a sustainable source of funding for early childhood programs. It'll work for a few years, but after that, the federal government will have to find funds in some other part of the budget. Maybe that money will come from lower health care costs, since fewer people will be smoking. Maybe it'll come from lower K-12 costs, since preschool causes fewer kids to be held back a grade. But those savings don't exactly show up in the budget as a line item, and they could quickly be swallowed up by needs in other areas. 

So, even if President Obama's early childhood proposals make it past a skeptical Congress, they'll need some kind of adjustment to survive long-term.