This piece by Josh Culling of the National Taxpayers Union is a good reminder that sin tax increases often impact everyone — saints and sinners alike.
We all remember President Obama’s “firm pledge” on the campaign trail to shelter all Americans earning less than $250,000 per year from any tax increases. He promptly broke that promise on February 4, 2009, signing a 159 percent increase in the federal excise tax on cigarettes to fund an expansion in the State Children’s Health Insurance entitlement program. The median income of smokers is $43,723 — roughly $13,600 less than nonsmokers. And the cigarettes, alcohol, and food that moderate-income households purchase will take a bigger bite out of their finances.
Yet, the smoking poor aren’t the only ones affected by increases in sin taxes. They often lead to hikes in taxes that affect broader segments in the population — sales, personal and corporate income, and a host of “fees.” This phenomenon is the result of the unpredictable revenue projections attached to sin taxes. Between FY 2003 and FY 2007, the state excise tax on cigarettes was raised 57 times. Only in 16 instances did the resulting revenue meet estimates.
No surprise here — proponents of increased cigarette taxes promise they will reduce smoking and increase revenues. Over the long term, they can do one or the other but they can’t do both. Because taxing activities reduces their frequency, sin tax increases to cover permanent spending programs will ulimately lead to increases in other broader-based taxes and fees. Which is why politicians who claim to favor low taxes — Republicans especially — should try to avoid them.