In their desperation to cut losses in the 2010 midterms, Democrats are relying ever more heavily on their message that Republicans care nothing about the poor. The GOP, we are told, has opposed tax relief for working class families, subsidized health insurance for those who can’t afford it, and extended unemployment benefits for people who have lost their jobs through no fault of their own, all while siding with wealthy banking executives in the Democratic dichotomy between “Wall Street” and “Main Street.”
Conveniently absent from this analysis is Republican opposition to President 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—from 39 cents to $1.01—in the excise tax per pack of cigarettes, the Office of Management and Budget reports 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 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,” pointing 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—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 SCHIP 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.” Little 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. The Washington Post reports a dramatic decline in business at a local tanning salon. 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 twenties and thirties 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 Barack 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, which are permanent unlike the payroll tax rebates in the stimulus, 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?