Tax on tobacco to help finance US health care

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SMOKERS AND tobacco companies are beginning to see it written in their own nicotine haze: an imminent and dramatic increase in cigarette tax to help pay for the health care reforms shortly to be advocated by the White House.

The panel appointed by President Clinton to come up with a new health care system for the country, headed by the First Lady, Hillary Rodham Clinton, is believed to be considering roughly 30 different options for raising new funds needed to ensure that medical coverage can be made available to all Americans.

Although Mrs Clinton is not due to unveil her proposals until May, recent asides from White House officals, including from the President, leave little doubt that increased taxes on tobacco will feature large. The introduction of a European-style Value Added Tax is also under consideration.

The cost of extending health care to all Americans has been put at between dollars 35bn (pounds 25bn) and dollars 90bn a year. About 37 million Americans are living without any health insurance - one of the worst indictments of the present, discredited, health system.

'I think it should be raised,' the President confirmed when asked during a recent television interview about the level of federal tax on cigarettes, currently just 24 cents a pack. Budget officials in the White House have suggested that it could rise even to dollars 2 a pack - doubling the shelf price.

Pre-empting Mrs Clinton, a group of Democrats on Capitol Hill, including Senator Bill Bradley, introduced a bill to Congress yesterday that would increase taxes to dollars 1 a pack. Saying he would support double that amount, Mr Bradley said his goal was to 'turn the Grim Reaper into the health keeper'. Ailments from smoking are themselves said to increase health costs by dollars 24bn.

Nor will Mrs Clinton necessarily stop at tobacco products. In putting together a broad package of so-called 'sin taxes', she may advocate higher levies also for alcoholic beverages as well as for guns and ammunition. Such proposals would doubtless prove controversial, and the ever powerful tobacco lobby has already stirred into action, arguing that taxes on cigarettes are regressive, hitting poor people first. The anti-smoking movement is also very strong, however, and ardently supports the move.

Selling VAT - a notion not altogether unfamiliar to Americans, who pay state sales taxes - may be more difficult. But Mr Clinton has confirmed it is an option. Its appeal is that the White House views the burden of VAT, which is applied at every stage of production, as being spread fairly with those with the most to spend contributing the most.

When they come, Mrs Clinton's plans are expected to rest on the premise of 'managed competition', with steps taken to open insurers to much greater competition, limits on government funding for the Medicaid and Medicare programmes, and perhaps even federal regulation of doctors' earnings. In addition to obliging business employers to provide health insurance benefits for all their employees, the government may place a new tax on those benefits as another means of raising new revenue.

Mr Clinton, meanwhile, appointed the Vice-President, Al Gore, yesterday to head a campaign to streamline government bureaucracy, cutting costs and, where necessary, consolidating federal agencies. Calling it a 'historic step in reforming the federal government', Mr Clinton announced a freephone number for Americans to use if they identify waste or fraud in government.