More on Obama's First Tax Hike


Yesterday President Obama signed legislation expanding the State Children's Health Insurance Program (SCHIP), relying largely on a 156-percent increase in the federal cigarette tax to fund it. As Americans for Tax Reform notes, Obama's support for the SCHIP bill violates his campaign promise not to raise taxes on families earning less than $250,000 a year. Here is how he put it last September in Dover, News Hampshire (emphasis added):

I can make a firm pledge. Under my plan, no family making less than $250,000  a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.

Not only does raising the federal cigarette tax from 39 cents to $1 a pack break this promise; as I explained in a June 2007 column, it is pretty much the most regressive way Congress could have chosen to fund SCHIP expansion, not only because excise taxes take a bigger chunk of income from the poor than from the rich but also because there's an inverse correlation between income and smoking. Furthermore, the beneficiaries of the SCHIP expansion will in many cases be more affluent than the people picking up the tab. How does any self-identified progressive justify this sort of income redistribution?

As I've pointed out before, the argument that smoking imposes a burden on taxpayers does not fly; if anything, smoking saves taxpayers money because it shortens smokers' lives, leading to less health care in old age and fewer demands on Social Security. And the paternalistic argument—that cigarette taxes help smokers by encouraging them to quit—is hard to reconcile with the claim that people do not really choose to smoke, since nicotine addiction overrides their free will. People who decide to stop smoking when the cost of the habit goes up plainly are in control of their behavior, which undermines the case for government intervention. The one positive thing that can be said about Obama's support for this tax hike is that he'll be paying it too, though he is quite well off and his occasional cigarettes won't put much of a dent in his budget.

More Reason coverage of SCHIP expansion here and here.