Cigarettes and Preschoolers Don’t Go Together

July 24, 2013

During his 2013 State of the Union address, President Obama proposed a universal preschool plan. Although the proposal hasn’t been in the news much since the speech, Education Secretary Arne Duncan has been making the rounds recently, touting the administration’s plan, which involves hiking cigarette taxes to pay for universal preschool.

The administration’s goal (Powerpoint, page 3) is to “ensure that more children and families have access to high-quality early learning and development programs.” They cite that the U.S. is 28th in the world in enrollment rates for four-year-olds, and 25th in public spending as a percentage of GDP on early education. As always, though, the devil is in the details.

The administration wants to spend $75 billion over ten years to send every four-year-old to preschool, in addition to $750 million in discretionary grants to help states implement the plan. Federal spending for the program in FY 2014 would be $1.3 billion, but it would grow to nearly $11 billion by FY 2020.

Source: US Department of Education

But states would be on the hook for an increasingly large share of the spending (page C-11). In the first two years of the program, states would have to spend just 10 cents for every dollar the Feds provide. By year six, the matching rate for states would be 50 percent, meaning the states will pay 50 cents for every dollar the Feds pay. By year ten, the matching rate would be 300 percent, meaning that states would bear 75 percent of the total costs of the program. If, however, states successfully provide education to 50 percent or more of children from low and moderate-income families, then the states will receive a reduced matching rate.

The even bigger problem is with how the administration plans on paying for universal preschool—increasing the federal cigarette excise tax to $1.95 a pack. While it might be politically expedient to isolate a small unpopular group (smokers) to pay for a service to a popular group (preschoolers), universal education would in fact be universal—so we should pay for it with broad based (universal) taxes.

But even if you’d like to have smokers pay for preschool, it might not work for administrative reasons in the long run, as tobacco use has steadily declined since 1963:

(Graph from Burns, Lee, et. al.)

In the President’s FY 2014 budget, there are estimates for the revenue expected from the new cigarette tax. On page 202, there is a projection for increasing the tobacco tax and indexing it for inflation:

The tax’s first ten years will raise $78.091 billion, which is enough to pay for the $75 billion costs of the program. But the administration itself predicts that the revenue from the tax will decline towards the end of the ten year window. The year 2015 would see the most new revenue ($9.844 billion). By 2023, however, the revenue would fall to just over $6 billion. The table also shows that the majority of the new revenue would come during the first five years of the program (2014-2018). Consider also that the President’s own projections show spending on universal preschool approaching $8 billion in 2023, even though projected revenues would be just over $6 billion.

This is a recipe for increasingly large deficits, as the cigarette tax will fail to raise enough revenue beyond the first ten years. If states are unable to pay for their share of the universal preschool, it’s also possible that the federal government will have to pick up an even bigger percentage of the cost.

If the country decides that universal preschool is important (which is open for debate according to the Brookings Institution), then we should be willing to pay for it with real, broad based taxes. Cigarettes and preschoolers just don’t go together.

For more information on cigarette taxes, click here.

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