House Risks Veto, Retains 16 Tax on Cigarettes

Under the threat of a presidential veto, the House passed a package of spending cuts and tax increases Thursday that includes a permanent extension of the federal excise tax on cigarettes at its current 16-cent-a-pack level.

The legislation, which would reduce this year’s federal budget deficit by $4.6 billion, is one of three bills mandating changes in current law needed to reach the congressional budget resolution’s goal of cutting the deficit by $56 billion. It was passed by a vote of 245 to 174.

Senate Bill Stalled

A similar extension of the tax is in a deficit-reduction bill approved by the Senate Finance Committee. But that bill is stalled because of efforts by textile state senators to attach trade protection legislation to it.

President Reagan has threatened to veto the cigarette tax extension, both because he objects in principle to any new tax and because the extension would deter seven states from carrying out plans to raise new revenues by imposing higher cigarette taxes of their own.

Also in the bill are new rules for Medicare, Medicaid and welfare programs, as well as a number of new taxes, such as Customs Service user fees and higher premiums for single-employer pension plans insured by the federal Pension Benefit Guaranty Corp.

But the cigarette tax extension is the most controversial issue. The tax had been doubled in 1982 to help reduce the deficit and was scheduled to drop back to 8 cents a pack this year. The tax is expected to raise $4.9 billion over three years.

To appease congressmen from tobacco-producing states, the House Ways and Means Committee included in the bill a provision setting aside 1 cent of the excise tax for a special fund to help pay the cost of the tobacco price-support program.

Rep. Bill Frenzel (R-Minn.) objected to the provision “because it turns around and gives a penny of that tax back to the (tobacco) producers as a gift from the taxpayers of America.”

“It’s totally inconsistent,” Rep. Judd Gregg (D-N. H.) agreed. “If you’re going to earmark money for tobacco growers, you ought to earmark money for cancer research.”

Among other provisions of the bill is a 1% increase in the rate at which Medicare reimburses hospitals for treatment of Medicare recipients. The increase was seen as a compromise between existing law, which allows a 5% rise based on higher health care costs, and a freeze that the Department of Health and Human Services had imposed on payment rates.

The legislation retains the present freeze on payments to physicians who treat Medicare patients, unless the doctors agree to accept rates determined by Medicare as payment in full for their services, rather than billing patients for charges beyond normal costs.

Would Expand Family Aid

Another provision of the bill would require all states to provide Aid to Families with Dependent Children to needy families, even if both parents are present. Such coverage is now optional and is offered by only 23 states.

The bill would also require states to provide Medicaid coverage for pregnancy care in low-income families in which the principal earner is employed and would allow states to provide hospice care for terminally ill Medicaid patients.