Yesterday, my colleague Nan Swift weighed in on some of the leaked information about President Obama’s forthcoming budget. She noted in her blog post, “Among the big-ticket taxes the President is touting is another massive hike in federal tobacco taxes to fund the universal pre-K program the President spoke of during his State of the Union address earlier this year.”
So we know Obama will call for a huge increase in the tobacco tax. But just how big a hike are we talking?
Well if the Republican staffers at the Senate Budget Committee are correct, the President intends to spend an additional $100 billion on the pre-K program and finance all of this new spending with higher tobacco taxes. Last year, the Congressional Budget Office (CBO) evaluated a hypothetical 50-cent per pack tax increase on tobacco – from $1.01 to $1.51. The analysis estimated that this would net the federal government $38 billion in new tax revenues plus an additional $3 billion in reduced expenditures. So this hypothetical massive tax increase would fail to cover even half the cost of the new pre-K program. Fully paying for it, as the Obama administration has insisted it would do, would likely require at least a doubling of the current federal tobacco tax – presumably pushing it to more than $2 per pack. Keep in mind, this astronomical rate would not include state and local taxes, which can reach almost $6 per pack in some jurisdictions.
In this weak economy, a huge tax hike on tobacco would be particularly troubling for the poor. Lower income Americans are more likely to smoke and spend a much larger percentage of their disposable income on tobacco products. Smokers and non-smokers alike should oppose this steeply regressive tax increase. Remember, as he pushes for a tax that would particularly burden poor Americans it was only a few years ago when President Obama promised he would never raise taxes on those making less than $250,000.