NCPA - National Center for Policy Analysis


February 4, 2009

Congress is moving so fast and furious that it's impossible to keep up.  And we are about to miss the tax increase on the poor and middle class that Congress is going to pass without a whit of media attention, says the Wall Street Journal. 

That's the tax increase on smokers that is part of the new children's health care subsidy bill, explains the Journal:

  • To finance this $73 billion entitlement expansion over 10 years, the bill imposes an additional federal tax of 61 cents per cigarette pack, from 39 cents today.
  • According to the Bureau of Economic Analysis, 96 percent of America's 25 million smokers make less than $150,000 a year.
  • The Tax Foundation estimates that 99 percent of the smokers who will pay the new tax make less than $250,000, which is the income below which President Obama promised would see no tax increase.

No other federal tax hurts the poor more than the cigarette tax.  A 61-cent cigarette tax hike is the equivalent of a 25 percent cut in that tax credit for some low-income families.  So politicians give these families money with one hand and take it back with the other, says the Journal.

But there's another problem.  The number of smokers keeps falling, but health care costs keep rising.  So paying for the biggest new health care expansion in years with a declining revenue source is a guarantee of future red ink that will increase pressure for higher income taxes too. 

Look at Maryland:

  • The state doubled its cigarette tax two years ago to finance a new health care program.
  • That has led to 25 percent less tobacco revenue than expected because of declining sales, so the program is already in the red after its first year.

Source: Editorial, "The New Poor Tax," Wall Street Journal, February 1, 2009.

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