WASHINGTON (AP) - Democratic lawmakers on Thursday are expected to propose raising taxes on tobacco products to fund a health care program, potentially posing a threat to Philip Morris, Reynolds American Inc. and other cigarette maker investors.
Senate Finance Chairman Max Baucus is scheduled to release his proposal for expanding the government program that provides health care to 6 million children who don't qualify for Medicaid but whose families cannot afford insurance.
Under self-imposed budgeting rules, the Democrats must offset any new spending with spending cuts or new taxes.
Sen. Orrin Hatch, who is involved in negotiations on the issue, said Tuesday that Baucus will seek $35 billion for the program by proposing higher federal tobacco taxes.
The idea has support from some Republicans, including Oregon Sen. Gordon Smith, who suggests raising the tax from the current level of 39 cents per pack to $1 per pack.
Higher tobacco taxes could pressure cigarette makers' stocks, but it might provide relief to some of the nation's largest health insurers. While Senate lawmakers are focused on raising tobacco taxes to fund the Children's Health Insurance Program, leading House Democrats have suggested cutting payments to private companies that participate in Medicare, the government health plan for seniors.
America's Health Insurance Plans, which represents insurers such as Humana Inc. and UnitedHealth Group Inc., supports raising the tobacco tax, arguing Congress shouldn't cut payments to senior health care plans to fund health care for children.
Cigarette makers are not waiting for a formal legislative proposal to push back, arguing that smokers are already overtaxed at the state and federal levels.
"The government collected $33 billion from smokers last year alone and to continue to go back to them to fund this ever-expanding program is unfair," said Steve Kottak, spokesman for Reynolds American, which makes Camel, Salem and Winston brand cigarettes.
A spokesman for Philip Morris USA, a division of Altria Group Inc., said U.S. cigarette sales are declining 2 to 3 percent per year and won't be a stable funding source for children's health care.
"If you're relying on a cigarette excise tax to fund an important program like this, it will create long-term budget shortfalls that will have to be paid for with additional tax increases," said Bill Phelps, a spokesman for Philip Morris, maker of Marlboro and Virginia Slims cigarettes.
While Wall Street analysts are warning that the threat of a tax hike is real, many don't expect the tax to go up to $1 a pack.
Deutsche Bank analyst Marc Greenberg wrote in a recent note that the "worst-case scenario" would be a doubling of the current tax rate to 78 cents per pack. If that happens and states decide to raise taxes at that level as well, Greenberg estimates national cigarette volumes could fall 5 percent next year.
