Wednesday, April 01, 2009

Obama's Poor Tax

A journalist from The Wall Street Journal posted his opinion on Obama’s recent decision to raise the tobacco tax levy, and how it will negatively affect the country. You can find a snippet of the story below, but the full text can be found here.

"I can make a firm pledge . . . no family making less than $250,000 a year will see any form of tax increase." Remember that? It was Barack Obama, campaigning to become president last Sept. 12 in Dover, N.H.

Indeed, he promised repeatedly that 95% of American families would get a tax cut. So it's especially fitting that he chose April Fools Day to implement his first tax increase -- which will fall mostly on individuals and families who do not make anywhere near $250,000 per year.

Early in February, the president signed a law to triple the federal excise tax on cigarettes -- which will jump from 39 cents per pack to $1.01 today. His administration projects this tax hike will bring in at least $38 billion over the next five years.

If you don't smoke, maybe you don't care. Maybe you even think a higher "sin tax" is a good thing. But health issues aren't the only concern here. There are also questions of fairness, federalism, macroeconomic impact, and crime.

The fairness issue is particularly troubling. According to the Centers for Disease Control and Prevention, only one in five Americans smokes, so the excise targets a minority -- and over half of all smokers are low income, and one of four are officially classified as poor.

Mr. Obama prefers to tout his tax cuts for low-income households. But his "stimulative" Make Work Pay tax cut gets dribbled out at $8-$10 a week. A pack-a-day smoker will pay half of that back in higher cigarette taxes. Smokers getting welfare, unemployment or disability checks instead of paychecks won't get as much in tax cuts, but they will still pay the whole cigarette tax increase. Anyone concerned about widening income inequality should have second thoughts about this distribution of the tax burden.

We should also note how this tax increase affects state finances. State governments rely on their own cigarette excise taxes for hefty revenue streams. In 2008, according to the National Tax Foundation, state governments took in $15.4 billion in cigarette taxes. Hard-hit Michigan, Pennsylvania, and California each took in over $1 billion; New York and Texas took in $1.5 billion each.

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