Cigarette tax hurts poor more 

Democrats are relying ever more heavily on their midterm 2010 election message that Republicans care nothing about the poor. Conveniently absent from this analysis is Republican opposition to President Barack Obama’s cigarette tax increase, which he signed into law a couple of weeks after taking office. Thanks to this tax hike, which included a 159 percent increase in the excise tax per pack of cigarettes — from 39 cents to $1.01 — the Office of Management and Budget reported that tobacco tax receipts are up $5.2 billion, or 68 percent, from $7.6 billion in fiscal year 2008 to $12.8 billion in fiscal year 2009.

While higher cigarette taxes do discourage smoking, they are highly regressive. Analyzing a slightly less severe proposal in 2007, the Tax Foundation noted that “no other tax hurts the poor more than the cigarette tax.” It pointed out that the burden of such a tax hike would be 37 times heavier on the lowest-earning 20 percent of households than would be an equivalent income tax increase.

This amounts to a 25 percent reduction in the Earned Income Tax Credit, assuming the poorest citizens share the new tax burden equally. But they don’t share the burden equally. Smokers and those involved in the tobacco industry shoulder the entire cost.

Perhaps even more disturbing is that the law was passed as part of the Children’s Health Insurance Program Reauthorization Act of 2009, which uses the tax increase in part to finance an expansion of State Children’s Health Insurance Program benefits for children of households earning up to 300 percent of the federal poverty level — and even higher income levels in New York and New Jersey. As the Tax Foundation observed in its 2007 analysis, 49 percent of the population is within 300 percent of the poverty line, meaning a tax that falls heaviest on a fraction of the poor is financing an extension of medical coverage for middle-class children.

The latest manifestation of this “corrective” tax agenda is the so-called “tanning tax.” Rarely noticed amid the coverage of taxes on “Cadillac” health plans in Obamacare was the bill’s 10 percent surcharge on the use of ultraviolet indoor tanning beds, which took effect earlier this month.

Most salons are small businesses owned and staffed by women. Moreover, as John Overstreet of the Indoor Tanning Association explained in an interview, the industry’s customers are primarily women in their 20s and 30s who do not have a great deal of disposable income. While excessive tanning has been shown to cause skin cancer, it can be used in moderation as a treatment for psoriasis and other medical conditions for which the law makes no exception.

As if the effects of these taxes weren’t bad enough, they are in direct violation of Obama’s campaign promise that “no family making less than $250,000 a year will see any form of tax increase.” Tell that to a minimum-wage worker who smokes a pack a day, or the owner of a tanning salon who now has to lay off employees.

These rate hikes are permanent, unlike the payroll tax rebates in the stimulus. They were enacted without any apparent regard for their redistributive implications in an effort to punish citizens committing the health sin du jour. Democrats have used the tax code to bring smokers and tanners to justice. Who’s next? Soda drinkers?

This article appeared in The Weekly Standard.

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Peyton R. Miller

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