Bunning Floor Speech on SCHIP

Mr. President, I would like to talk about the state children’s health insurance program – also known as SCHIP. A few weeks ago, the Finance Committee passed the Baucus bill to reauthorize this program.

I did not support this bill in committee and will not be supporting it on the floor. Today, I’d like to take a few minutes to explain my concerns with the Baucus bill.

I’d also like to talk about the SCHIP reauthorization bill I will be supporting this week and have helped craft over the past couple of months – the Kids First Act.

This bill is a good piece of legislation that reauthorizes this important program in a fiscally sound way and keeps the focus of the program on low-income children.

I have significant concerns with the budget gimmicks used, the SCHIP provisions, and the tax increases in the Baucus bill.

The budget gimmick used to fund the Baucus bill is irresponsible, jeopardizes coverage under the program, and basically guarantees another tax increase five years from now.

Under the bill, SCHIP spending in 2012 reaches $16 billion.

However the very next year, spending drops to $3.5 billion.

While this strategy helps the drafters hide an additional $40 billion in spending, does any member of the Senate really think that SCHIP spending in 2013 will be $3.5 billion? That’s below the current spending level of $5 billion a year.

Does any member really think we’ll kick millions of kids off this program in 2013 to accommodate this lowered spending? Of course, the answer is no.

That means Congress will have to come up with a significant amount of money to pay for the increased spending, which will likely mean reaching into the wallets of hard-working Americans again.

I also believe that SCHIP should be a program for low-income children.

When congress created the program in 1997, it was intended for children without health insurance who lived in families making less than 200% of the federal poverty limit.

For 2007, 200 percent of poverty is about $41,000 in income for a family of four.

Not many people realize adults are covered under SCHIP.

Most people rightly think this is a program only for children – since it is the "State Children’s Health Insurance Program."

Over the years, the Department of Health and Human Services has approved expansions to the program to allow states to cover these adults. These expansions shouldn’t have been approved in the first place, and it is Congress’ responsibility in the reauthorization to reign in these abuses.

While the Baucus bill at least ends coverage for childless adults currently on SCHIP, it still allows other adults – specifically parents – to stay on the program in certain states. And, any state that currently covers parents can keep adding new parents to their programs.

The Kids First Act that I am supporting responsibly reauthorizes the SCHIP program and keeps the focus on low-income children.

This bill reauthorizes the program for five years at a cost of about $39 billion.

This would still be a significant, but responsible, increase over spending in the first 10 years of the program.

The bill would require states that want to cover children and pregnant women above 200% of the poverty level – or $41,000 for a family of four – to pay more from their state coffers to do so.

The bill also takes steps to limit the number of adults on the SCHIP program.

While we wouldn’t require states to remove any adult currently on the program from their rolls, we would reimburse states at a lower amount for the childless adults and parents they currently have on their programs.

Also, states couldn’t add any new childless adults or parents to their SCHIP rolls.

If they want to cover these individuals, then they need to do so under their state Medicaid programs.

The Kids First Act also stops the Department of Health and Human Services from approving any more waivers or demonstration projects for states that want to cover parents or childless adults.

The Kids First Act is a good proposal that I hope will get full consideration on the Senate floor.

It keeps SCHIP focused on low-income children, curtails states ability to add any new parents or childless adults to the program, and makes sense from a financial standpoint. Unfortunately, the Baucus bill falls short on these key points.

Also, the tobacco tax in the Baucus bill is fundamentally unfair to my state and the surrounding states. The chart I have here illustrates the problem.

It is compiled from data drawn from a CDC database on tobacco consumption and projections by Families USA concerning SCHIP spending.

As you can see, the states in red will pay more in tobacco tax over five years than they are expected to receive in SCHIP grants. In my state, Kentuckians will pay $602 million more in tobacco tax than the state will receive in SCHIP money. Virginians will pay $576 million more, and citizens of Florida will pay $703 million more over five years.

California, on the other hand, will benefit with $2.5 billion over the same period -- net of any tobacco tax. This is simply unfair.

The problem with the tax is that the money is coming from low-income smokers in my state and all of the red states on this chart, and is going to pay for an extravagant expansion of SCHIP in California, New York, and Texas -- the states depicted in green.

This bill will also - - without any doubt - - add an enormous boost to black market tobacco smuggling and counterfeiting.

The plan would be a tremendous gift to organized crime and the black market king pins who will profit handsomely from it in future years.

There is plenty of past evidence of this. In 2002, for example, New York City increased its tobacco tax from 8 cents to $1.50 per pack.

The city’s revenue estimators predicted an additional $107 million in revenue. Instead, the tax brought in just $43 million.

What is more, the tax increase on cigarettes cost the state over $600 million in tax revenue due to lower sales at convenience stores throughout New York State. An economist found that most of the reduction was due to smuggling, cross border sales, internet sales, and sales on Indian reservations.

Even supporters of this bill acknowledge that the higher tax will have an impact on demand. It will reduce legal consumption of cigarettes.

It is not likely to reduce total consumption - - as the supporters of this bill say it will - - because it will also increase smuggling.

But legal consumption is what matters to us, because that’s the only part that is taxed.

The revenue estimate provided by the joint committee on taxation shows this.

Revenue is projected to decline by about $700 million per year by the last year of the estimating window.

That’s right. Revenue is expected to go down over time as the number of legal sales of tobacco products declines.

Whatever its other problems, the tobacco tax is a poor foundation for SCHIP. We are matching a declining source of revenue with a growing federal program. This does not make fiscal sense.

If we were honest, and truly wanted to fully fund SCHIP spending with a tobacco tax, the federal government would have to encourage people to smoke.

That’s what this chart shows. The federal government would need an additional 22.4 million smokers by the year 2017.

Of course, I don’t support any such effort, but this highlights the budget gap that this bill is sure to create. The revenue for this program is going to have to come from more tax increases down the road.

And we all say we oppose regressive taxes. But what are we considering today? A highly regressive tax. In fact, this tax is among the most regressive types of taxes we could consider.

In my state, the impact on low income taxpayers will be compounded. It will hit low income Kentuckians, Kentucky tobacco farmers, and every citizen of the Commonwealth of Kentucky.

Although there has been a dramatic decrease in the amount of tobacco farmers in my state due to the tobacco buyout, tobacco continues to play an important role in Kentucky’s agricultural landscape.

Tobacco barns and small plots of tobacco still dot the Kentucky landscape. Cash receipts for tobacco are projected to contribute between $300 -$350 million to Kentucky’s economy this year.

An increase in the excise tax on tobacco will drive down the demand for consumption. This will result in less tobacco being purchased from Kentucky tobacco farmers by manufacturers – both cigarette and non-cigarette.

It will most likely force the specialty growers in my state - Kentucky burley leaf and Kentucky Wisconsin leaf – out of business. These are small family farms in rural Kentucky that rely on the revenue for their crops.

The money they get from tobacco pays their mortgage, puts their kids through school or allows them to keep farming.

The CBO has estimated that the SCHIP proposal will result in a 5-6% reduction in demand for tobacco during its first year.

This will most likely cause a $5.4 million reduction in payments to rural farmers in my state next year under the master settlement agreement.

Some people will say there’s nothing wrong with all this, because it will force some people to quit smoking and we’re using the money to help poor children.

But, who gets credit for this supposed act of charity? This plan would take money from one group of poor people and give it to another.

I urge my colleagues to oppose the Baucus SCHIP bill and support the Kids First Act.

Thank you.