Obama’s Budget: Flawed Tobacco Tax to Fund Ineffective Program

April 10, 2013

By Jason Hughey

Last year, President Obama pledged that he would not raise taxes on Americans who earn less than $250,000.  Now, the President is actively proposing a new tax hike for Americans who choose to smoke tobacco products.  The President’s FY2014 budget proposal includes another tax hike on cigarettes and other tobacco products, effectively doubling the current federal cigarette tax rate from $1.01 to $1.95.  This would be the second time the President used tobacco taxes to break his promise not to tax middle-income Americans; in 2009 he hiked it as well.

The President’s tax hike would primarily hurts the people that he promised to protect.  According to Americans for Tax Reform, independent research shows that “the average smoker in America makes about $40,000 per year.”  Furthermore, Steve Hargreaves notes at CNN Money that, “Nearly half of all smokers had a household income of less than $25,000 a year.”  The bad news for the President is that there’s simply no way to twist this data: a tax hike on smokers is a tax hike on the very people he promised not to tax.

The president still justifies this tax hike on the basis that the funds will go toward universal access to pre-school education.  He also wants this tax hike because he believes it’s appropriate to use the tax code to manipulate Americans’ behavior.  That’s why, in his budget announcement today, the President said: “We’ll work with states to make high-quality preschool available to every child in America.  And we’re going to pay for it by raising taxes on tobacco products that harm our young people.”

However, the President’s pre-school program, Head Start, is a failure according to his own administration’s study.  The Department of Health and Human Services released this study last October, which concluded Head Start’s benefits were lost by the third grade.  Consequently, the money collected by this tax would not help children.  Rather, it would continue trapping them in a wasteful and ineffective pre-K program.  All the while, low- and middle-income American smokers would be forced to pay the cost of this tax.

The President might say that this tax will incent fewer Americans to smoke, which will have positive public health benefits.  However, if this is true, it will also mean that less people will pay the tax.  Since the 2009 tobacco tax increase, about 3 million fewer people smoked in 2011 than in 2009.  Thus, this tax will not provide the revenue that the President seeks to fund his pre-school program.  Either the President wants smokers to continue or increase their cigarette purchases (all for the children, of course) or he wants them to quit smoking.  But he cannot have it both ways.

Furthermore, the tax code should never be used to punish personal choices that politicians don’t like.  If the President believes that smoking is unhealthy, he should not smoke.  But he should not use the tax code to punish adults who make the choice to buy a pack of cigarettes.  If the President truly wants to protect low- and middle-income Americans from tax hikes, he should leave his personal opinions about smoking at the door.  Since he has not done so with this budget, he has proposed a tax hike that will harm many Americans.

The President’s proposal is misguided on both ends.  On the one hand, he raises taxes on low- and middle-income Americans to fund a failed pre-school education program.  On the other hand, he raises tobacco taxes so high that less people purchase tobacco products, leaving the program underfunded: just another flawed big government tax-and-spend proposal.

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