The Center on Budget and Policy Priorities released a report this week advocating for a federal tobacco excise tax hike, which is included in President Obama's new budget. The proposal would raise the federal cigarette tax from $1.01 to $1.95 per pack in 2014 and index it for inflation thereafter, which means future tax hikes on autopilot. The CBPP boasts that the rate increase would have a dual effect of “reducing the number of premature deaths due to smoking” while also “raising an estimated $78 billion over ten years to finance early childhood education.”
ATR respectfully disagrees with CBPP’s call for a tobacco tax hike. Here are a few problems with the proposal:
- A tobacco tax hike obviously goes against President Obama’s promise that “no family making less than $250,000 a year will see any form of tax increase.” Since smokers have average incomes well below the national median, let alone $250k, a tobacco tax increase would certainly break that commitment. CBPP’s proposal underscores the organization’s confidence that the president is not a man of his word. This is not unfounded. The President has shown time and time again that this was an empty promise made to the American public. On February 4, 2009, just sixteen days into his first term, Obama signed into law a 156 percent increase in the federal excise tax on tobacco. CBPP clearly believes the president to not only be a liar, but a serial pledge breaker.
- Greater reliance on the tobacco taxes makes government revenues more volatile and thusly makes budgeting more difficult. The unpredictability and instability of tobacco taxes has been on display at the state level in recent years. In fact, of the 57 tobacco tax increases enacted by states between 2003 and 2008, only 16 met initial projections. In fact, some states actually saw revenue decrease following a tobacco tax hike, most recently in New Jersey and Washington, D.C. D.C. City Council’s calculations were $15 million dollars short of projected revenue, while in New Jersey they fell a whopping $52 million short of expected revenue. More often than not, tobacco tax hikes simply serve as placeholders for future tax increases on the broader populace.
- Tobacco taxes put more pressure on poor, low income families, a group that President Obama and progressives allegedly care a great deal about. As noted by the Reason Foundation, “low-income, low-education and minority populations all smoke more than high-income, high-education and white populations, and by a good bit. Nearly a third of people below the poverty line smoke, while only 18% of those at or above the poverty line do.” The median income of smokers is just over $36,000 per year, and the last thing that they need is another tax increase, on top of the 20 tax increases in Obamacare, that will make it more difficult to make ends meet.
In summary, CBPP is calling for a tax increase that hits the poor the hardest, makes government revenues more volatile, and would have the President once again break his central campaign promise to Americans.