Federal Cigarette Tax Hike Takes Effect

March 30, 2009

The federal cigarette tax goes from 39 cents to $1.0066 per 20-cigarette pack tomorrow. The increase, as we noted in February, was coupled with an expansion of the federal children’s health care program.

As my colleague Gerald Prante and I argued, a politically popular and expensive program should never be funded by a small, low-income, politically unpopular minority like cigarette smokers. Just because the government needs revenue to fund some general spending program that has broad benefits doesn’t mean that an arbitrarily selected group of people should pay the tax. Popular, expensive, broadly available public programs should be paid for with broad-based taxes on income or consumption. In our paper, we run through many of the non-revenue reasons for raising cigarette taxes for S-CHIP and find them wanting, including the claim that the tax compensates for cigarette smokers disproportionately consuming public services.

This tax increase will be paid primarily by low-income people, which breaks President Obama’s pledge that families earning less than $250,000 will not see “any form of tax increase…not any of your taxes.”

Interestingly, we’ve been getting lots of complaints that many retailers are already charging the new tax. There’s not much we can do about such practices — even though it is an illegal tax being collected. I wonder if these retailers are reporting the revenue to their state tax authorities.

More on cigarette taxes here.

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