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NTU Expresses Opposition to an Increase in the Federal Tobacco Tax

May 1, 2007

Committee on Finance
United States Senate
Washington, DC 20510

Committee on Ways and Means
United States House of Representatives
Washington, DC 20515

Dear Chairman Baucus, Ranking Member Grassley, Chairman Rangel, and Ranking Member McCrery:

On behalf of the 362,000 members of the National Taxpayers Union, I write in opposition to increases in the federal excise tax on tobacco. Some lawmakers have recently floated proposals to hike tobacco taxes by up to 156 percent to pay for more government spending. We've said it before, and we'll say it again: tobacco consumers should not be used as a crutch for politicians who are unwilling to restrain spending.

In particular, some Members of Congress have suggested that the revenue raised from a tobacco tax hike could be directed toward expanding the State Children's Health Insurance Program (SCHIP). Extorting hundreds of millions of additional dollars from smokers is an unfair and economically-harmful way to fund spending program expansions. As we've seen over and over again in the past, tobacco money is often siphoned off into non-health spending projects. At the state level, tobacco settlement monies have been diverted from health programs to fund items such as sidewalks and water-control projects. Tobacco users could be forced to pay a severe tax with little or no return for their mandatory "donation." If Congressional leaders want to increase government spending in one area, they should cut spending in another area instead of foisting higher taxes on one politically-convenient group.

Tobacco taxes are highly regressive and disproportionately harm working-class Americans. According to your own Joint Committee on Taxation, more than 2/3 of all federal tobacco taxes come from those earning less than $40,000 per year. The population profile targeted by SCHIP is likely to be very similar to those who would bear the brunt of a cigarette tax increase. Why don't we just let these families keep more of their own money and save them the "cut" taken by bureaucrats running the spending programs?

If Congress is interested in sustainable spending, peddling a higher tobacco tax doesn't make sense. The federal government would become increasingly reliant on excise taxes extracted from the very product whose use among citizens it supposedly hopes to extinguish. If the consumption of cigarettes falls enough over the long term, revenue intake levels could also fall. Unless Congress is willing to cut future spending, it will need to raise taxes elsewhere. This leads many taxpayers to wonder what out-of-favor activity will be targeted next.

Unfortunately, some advocacy organizations seek to use the Tax Code as a vehicle for advancing social policies that they can't achieve through straightforward legislative means. Tobacco tax hikes are a perfect example of this practice: anti-smoker forces are unable to outlaw smoking (for good reasons), so they try to put cigarettes out of the reach of those at the lowest end of the economic spectrum by artificially raising the product's cost. Such manipulation has a price, not just for consumers, but also for the small businesses who serve them.

For the reasons spelled out above, our members ask that you close the door on the possibility of an unnecessary and unwelcome tax increase. We look forward to working with you on more worthwhile projects, such as overhauling our complex and confusing Tax Code.


Kristina Rasmussen
Senior Government Affairs Manager