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Obama Budget Could Call for Massive Tobaccco Tax Hike


Brandon Arnold
April 9, 2013

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.


 

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