Americanly Yours

If you arent a smoker, you might not have heard about the huge increase in cigarette taxes which took effect on April 1st.  On the first of this month, Federal excise taxes on cigarettes went up from 39 cents a pack to $1.01 per pack–an increase of 62 cents a pack.  This is an increase in the tax by about 159%.

It is not fair to target one group of people–a group who are disproportionately from the lower class and who are addicted to a a product–and tax them for the benefit of others.

From the article I linked to above:

“The rate of adult smoking in the United States is, in fact, directly related to household income, dropping in linear fashion as income rises. Overall, 21% of American adults smoke… A different way to look at this smoking-by-income data is that slightly more than half of today’s smokers (53%) earn less than $36,000 per year — making cigarette taxes highly regressive.”

Here is a chart from the CBO on what percentage of taxes are paid by what range of wage earners.  I found this about a year ago when I was looking for evidence that President Bush’s tax cuts benefited the rich way more than the poor.  It turns out that I was wrong about that, but more on that in another post.

I want you to look closely at this chart.  It will make the next couple of paragraphs make a lot more sense.  The lowest 20% of wage earners pays .8% of all federal taxes, the second 20% pays 4.1% of all taxes, the third 20% pays 9.3% of all federal taxes, the fourth 20% pays 16.9% of all federal taxes, and the top 20% pays 68.7% of all federal taxes.

This includes all income taxes, social insurance taxes, and excise taxes.

I like this chart because it allows you to look at excise taxes by themselves.  Scroll down to the bottom of the chart and they have the numbers for who pays the excise taxes in this country.  In this case, the bottom 20% pays 11.1% of excise taxes, the second 20% pays 14.4% of excise taxes, the third 20% pays 18.1% of excise taxes, the fourth 20% pays 21.9% of excise taxes, and the top 20% pays 34.1% of all excise taxes.

You can easily see that excise taxes fall much more heavily on the poor than do the average federal taxes.  In fact, you can see from the chart that the bottom 40% actually pay no income taxes and even received money back from the government, while the third 20% pays only 4.4%.  Combined, the bottom 60% of wage earners pay only .6% of federal income taxes, but pay 43.6% of all excise taxes.

The point here is that excise taxes excessively burden the poor when compared to other taxes.  As the numbers from Gallup above showed, smokers are disproportionately poor.  It sounds simple, but increasing taxes on a product used primarily by the poor amounts to an increase in the taxation of the poor.

This brings me to my next point.  Here is an article from the AP criticizing Mr. Obama for raising cigarette taxes and calling it a violation of campaign promises.

A couple of key quotes from the article:

“”I can make a firm pledge,” he [President Obama] said in Dover, N.H., on Sept. 12. “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. [emphasis added by me]””

“No one making less than $250,000 under Barack Obama’s plan will see one single penny of their tax raised,” Joe Biden said, “whether it’s their capital gains tax, their income tax, investment tax, any tax. [emphasis added by me]”

To me, the word “any” means “any.”  I dont have ANY idea why it wouldnt.

And of course, this tax was enacted in the name of the “public good.”  The money will go to fund S-Chip–a program which gives medical care to children of the poor.  I find this ironic for two reasons.  The first is that the government is essentially taxing the poor to provide their children with a service.  The second is that the government is also claiming that an increase in the tax on cigarettes will lead to a decrease in the number of smokers.  Im sure that this is a correct assumption, but the government is missing (or masking) the point here.

From the Danville Register and Bee:

“The twisted logic of this tax increase as a way to modify behavior shouldn’t go unnoticed. If higher cigarette taxes convince more people to quit smoking, won’t the S-CHIP program need a new source of federal dollars in the future? Won’t that lead to different taxes being raised to continue to cover the same number of children?”

The cigarette companies themselves realized that an increase in federal cigarette taxes would decrease the number of consumers using their products.  Can you guess how they responded?  Altria, the maker of Marlboro, increased their prices by 71 cents per pack for Marlboros, but 81 cents per pack for their menthol cigarettes (which tend to be smoked more often by the poor than other cigarettes) to cover the anticipated losses in smokers due to the new tax.  This means that those who dont quit are being forced to spend at least an additional $1.33 per pack of cigarettes.

I have a friend who supports the cigarette tax increase–he said “its about damn time smokers pay their share.”  But he is missing the point too.  Smokers pay their share–they have the same income tax rates as everyone else in the country.  They are being taxed to pay for a program that they may not use.

Our system of government is supposed to protect citizens against tyranny of the majority, and so I must reiterate my point from above:  It is not fair to target one group of people and tax them for the benefit of others.  It sets a bad precedent and only sounds good until the government decides that it wants to tax a product that you enjoy.

Americanly Yours,

Phred Barnet

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As of yet I have not responded to comments from readers.  I probably wont do so much in the future either, but I received a comment on my Inaugural Costs article that I felt needed a response.  Here was the comment:

“The government can’t help the fact that millions of people are about to flood the streets of DC. Obama’s election was too huge of an event for Americans to even allow a scaled back inauguration, and they will show up in DC regardless of the size of the “party”. It’s necessary to spend large amounts of money for safety reasons when dealing with a crowd that big; it’s not like they’re buying $40 million worth of booze. With so many nonresidents showing up, the crowd could easily become restless and end up costing the gov’t (not to mention the poor people caught in the subsequent panic) even more money than they’ve already spent.

Think about it: do you remember anyone jumping in their car to go see Bush sworn in? Me either, although I do know quite a few people that will be traveling well over a thousand miles this week just to catch a glimpse of history.

Anyhoo – most of the money spent on the actual festivities comes from private donors. Public funds are used mainly for unavoidable security reasons”

Let me start my refuting the 2nd to last sentence.  Most of the money spent on the festivities is NOT coming from private donors.  For one, the Federal government’s costs alone are at least $49 million.  As I said in my previous post, Virginia and Maryland’s combined costs are over $28 million.  Washington D.C.’s costs are at least another $47 million.  The total so far for D.C, Maryland, Virginia, and the Federal government is $124 million, meaning that this is the vast majority of the funds being spent.  If the total costs of the inauguration are $160 million, at least 77.5% of the money will be coming from the government.

Also, I understand that this is a historic event, but my argument was simply that Obama could have tried to tone down the celebration.  I used the example of Jimmy Carter in my article.  President Carter was inaugurated in 1977 after 16 years of failed presidencies, including a long war, corruption, criminal behavior, and an economy that makes today’s economy look great.  Yet, Mr. Carter explicitly asked supporters to tone down the celebrations.  All I was saying was that Obama could have at last asked his supporters to limit the inaugural activities.  People poured into D.C. because Mr. Obama encouraged it.  He could have refrained from encouraging it, given the current economic turmoil our nation is experiencing.  I would have.

Americanly Yours,

Phred Barnet

People are now estimating that Mr. Obama’s inauguration will cost at least $150 million, and possibly over $160 million.  I know that the Democrats are excited to end 8 years of Bush-led Republican rule.  I know that many people in this Nation are also excited that America will be inaugurating our first black president, but I don’t think that spending so much on a president’s inauguration can be justified, especially in this economy.

Lets put things in perspective:

George Bush’s inaugurations each cost around $40 million.

Bill Clinton’s 1st inauguration cost $33 million and his 2nd cost $23.6 million.

George H.W. Bush’s inauguration cost $30 million.

Obama’s inauguration is set to cost as much as all 5 of these previous inaugurations combined.

Economically speaking, these are not exactly the best of times.  Unemployment is rising and people are having trouble paying their bills.  In a time like this, should the American people really be forced to pay for this event?  After committing trillions of dollars that we do not have to bailouts and “economic stimulus,” our government should be trying to save money wherever possible, not paying for lavish parties.

The District of Columbia has anticipated their costs for the inauguration to be $47 million.  Virginia and Maryland will spend another $16 and $12 million, respectively.  The states are already broke–Virginia just cut $429 million from its public education budget and $418 million from its health care budget.  This is just not the right time for states to have to shell out money for a party when they cant even afford to educate their own children.

In 2005, Bush was criticized for spending $40 million on his 2^nd inauguration (even though only $17 million of this money came from the government). Yet, the media is not criticizing Obama even though his inauguration is costing about 4 times what Bush’s cost. If you are interested, this BBC article from 2005 details some of the complaints of Bush’s inauguration, including a request by Democratic Representative Anthony Weiner to cancel the inauguration because he says that the government shouldnt be throwing parties while people are dying in a war. We are still at war, but ill bet that Representative Weiner is not calling for Obama’s inauguration to be cancelled.  Also, I have yet to see an article online criticizing the costs of Obama’s extravagant inauguration (although, I am not surprised).

Mr. Obama fundraising during the previous election was nothing short of amazing.  Why couldn’t he use his network of donors to help fund the costs of his lavish inauguration.  Or, he could take the example of Jimmy Carter who intentionally scaled back his inauguration during a recession, spending only $3.5 million on his inauguration in 1977 to avoid drawing too much attention to himself while so many Americans were hurting.

Is it just me or does the story of an extravagant party for a Nation’s leader while its people suffer sound familiar?  Well at least maybe Obama will let us eat cake.

Americanly Yours,

Phred Barent