President Bush Vetoes Tax Increase
SCHIP expansion bumps federal excise tax on cigarettes up to $1 per pack

Washington, D.C. – Yesterday President Bush vetoed a bill that would expand the State Children’s Health Insurance Program (SCHIP) by raising federal excise taxes on tobacco products. Raising taxes on tobacco has specific negative ramifications on the economy and fiscal outlook for the state and federal treasuries.

The movement to raise the federal tobacco tax relies on the argument that the rate has not been increased in several years. However, on the state level, taxpayers have been faced with a consistent and substantial tax increases on tobacco products since 2000. According to analysis by the American Shareholders Association, over the past seven years, the average state cigarette tax rate has more than doubled from 42 cents to 92 cents per pack.

“Scapegoating Americans for their consumption choices is nanny-statism at its worst, but this ‘sin tax’ increase will not even achieve the liberals’ goal of higher revenue,” said taxpayer advocate Grover Norquist, president of Americans for Tax Reform. “With state governments more than doubling tobacco taxes in the last few years it is no surprise that state revenues are falling short of forecasts. Using kids as human political shields isn’t enough to hide that the SCHIP expansion increases spending using a declining revenue source.”

States that have raised their tobacco taxes in recent years are facing diminishing revenue streams due to smuggling and black market activity. In fact, Maine recently reported that cigarette tax revenue has come in on average $800,000 lower than expected per month since January. New Jersey made the news recently for being the first state to see revenues actually decline after Gov. Jon Corzine’s (D) tobacco tax increase. All told, a 61 cent per pack tax increase is expected to shrink state revenues by roughly $750 million.

“Higher taxes on tobacco users will not only encourage black market activity and discourage job creation by small businesses, but it will also raise the pressure for states to increase taxes as they see revenues dry up,”
continued Norquist. “I strongly urge Congress to sustain the president’s tax hike veto. The last thing taxpayers need is higher taxes for a bloated health care program.”