As Syria continues to dominate the news cycle, a costly White House proposal is flying under the radar: Preschool for All, an initiative that would provide “universal” pre-K for moderate-income 4 year-olds with the promise of $75 billion in federal tax dollars over 10 years.
To pay for the program, the President has suggested a 94-cent-per-pack cigarette tax hike – a regressive tax that would generate an unreliable revenue stream. By tacking on an additional 94 cents, smokers would be forced to shell out nearly $2 per pack on top of their state and local rates.
Thanks in part to declining rates of smoking, there simply will not be enough cigarette tax revenue to keep the universal pre-K program up and running. Which is bad news for smokers and taxpayers.
Historical data reveal just how shaky tobacco tax revenues have been. A recent report from the National Taxpayer’s Union’s research affiliate determined that in roughly 7 out of every 10 cases state-level tobacco tax hikes enacted between Fiscal Years 2001 and 2011 fell short of their initial revenue estimates. Not surprisingly, 66 out of 96 state actions that raised tobacco levies during that same period were followed by additional tax hikes within two years.
In addition, Preschool for All’s similarities to the Medicaid expansion, another troubled federal-state venture, are cause for concern.
In both instances, the federal government has offered up attractive funding match rates. While half of states have resisted Medicaid expansion so far, many lawmakers and governors have bought into the idea of “free” taxpayer money, since the federal government is offering to cover 90 percent of the costs in the long term. With Preschool for All, states would chip in 10 percent of the costs in the first two years, 50 percent by year six, and eventually 75 percent in year ten.
But what’s to stop the feds from reneging on their funding commitments? For the Medicaid expansion, the President has already floated the idea of lowering federal match rates, which would leave states with a greater burden than originally anticipated.
It’s not difficult to imagine a similar bait-and-switch with Preschool for All, especially once its major revenue stream — cigarette taxes — falls short of projections.
Also like Medicaid expansion, the administration is keeping mum on the topic of long-term costs for universal pre-K. At the state level, all we’ve heard about so far is the magical first year.
Minnesota, for example, would receive close to $39 million from Uncle Sam in year one and only have to kick in $4 million in state funds. In year ten, their share would be 75 percent, or $32.25 million, if the match rates go as planned. But many unprincipled lawmakers simply can’t resist another hit of federal cash and are willing to ignore these future state costs in order enjoy short-term benefits.
For the federal government, we’re told that the program should cost around $75 billion in the first 10 years, but beyond that, who’s to say? Is this another “camel’s nose under the tent” proposal?
Some in Congress have called for an even larger federal role in pre-K and so has the President. Medicaid was not originally intended to cover folks living up to 133 percent of the poverty line, but that’s exactly what the current expansion push is all about. Once pre-K for 4 year-olds is in place, there will be increased efforts to expand the program and its budget. Are taxpayers prepared for more tax hikes to underwrite it?
All indicators point to the Preschool for All initiative resting on a shaky foundation of politically convenient tax hikes and a politically contentious expansion model – if and when that foundation crumbles, taxpayers will bear yet another multibillion-dollar burden. As our economy struggles to get back on track, Americans need tax relief, and that can only happen if Washington stops loading up on more costly programs like Preschool for All.
Lee Schalk is State Affairs Manager for the 362,000-member National Taxpayers Union, “The Voice of America’s Taxpayers.”