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February 5, 2009


The New Poor Tax

Congress's latest money grab will leave you fuming.


The Wall Street Journal

Congress is moving so fast and furious that it's impossible to keep up. But we didn't want to miss telling you about the tax increase on the poor and middle class that Congress is about to pass without a whit of media attention.

We mean the tax increase on smokers that is part of the new children's health-care subsidy bill. To finance this $73 billion entitlement expansion over 10 years, the bill imposes an additional federal tax of 61 cents per cigarette pack, from 39 cents today. According to the Bureau of Economic Analysis, 96% of America's 25 million smokers make less than $150,000 a year. The Tax Foundation estimates that 99% of the smokers who will pay the new tax make less than $250,000, which is the income below which President Obama promised would see no tax increase.

"No other federal tax hurts the poor more than the cigarette tax," says the Tax Foundation. These are the same folks the Obama Administration wants to help by raising the amount of the earned-income tax credit, but wait. A 61-cent cigarette tax hike is the equivalent of a 25% cut in that tax credit for some low-income families. So the politicians give these families money with one hand and take it back with the other.

Oh, and there's another problem. The number of smokers keeps falling, but health-care costs keep rising. So paying for the biggest new health-care expansion in years with a declining revenue source is a guarantee of future red ink that will increase pressure for higher income taxes too. Just ask the politicians in Maryland, who doubled their cigarette tax two years ago to finance a new health-care program. That has led to 25% less tobacco revenue than expected because of declining sales, so the program is already in the red after its first year. But hey, it's the thought that counts.


(Originally published on February 1, 2009.)