Obama’s budget plan would increase taxes by $1 trillion over the next
decade, reported the Associated Press, including a new tax on cigarettes
and familiar proposals to increases taxes on the wealthy and some
corporations.
Obama’s proposal would increase the federal tax on
cigarettes from $1.01 per pack to $1.95. The new cigarette tax would
raise an estimated $78 billion over the next decade to pay for
pre-school programs for children.
“The idea of increasing taxes
on low- to middle-income Americans at this time is ludicrous,” Bryan D.
Hatchell, a spokesperson for Reynolds American Inc., told CSP Daily
News. “As middle-income Americans struggle to make ends meet in a very
slow economic recovery period, this is not the time to hit them with
higher taxes.”
The Obama administration raised cigarette and
other tobacco taxes by 158% just three years ago, said Hatchell. Those
taxes went to pay for children’s health care. The newly proposed tax
increases are earmarked for prekindergarten programs. “It is fiscally
irresponsible to peg funding for programs that are likely to get more
expensive every year to a product category that declines in sales every
year,” Hatchell said.
“The White House has supported efforts to
reduce smoking rates. You simply can’t have it both ways,” Hatchell
added. “If you’re successful in driving down smoking, you’re dooming
programs to nearly immediate budget shortfalls. This means that states
will be left holding the bag for funding or even more new taxes will
have to be imposed in the future.”
Only about 20% of Americans
use tobacco products, Hatchell said. “Why should they be asked to pay
for programs that help millions of others? Broadly used programs should
have broad and stable-to-growing funding mechanisms.”
Citing the
Centers for Disease Control & Prevention, Hatchell said the
estimated median adult smoker household income in 2011 was $27,700,
compared to $45,761 for nonsmokers.
About 47% of smokers have a
median household income of less than $25,000. Only 14.6% of smokers have
an income of $75,000 or more. “Cigarette tax hikes clearly will hit
lower-income Americans the hardest,” he said.
Bonnie Herzog,
managing director of beverage, tobacco and consumer research for Wells
Fargo Securities LLC, agreed. “We believe the proposal has a low chance
of passing in its current form given House Republicans, who tend to
oppose tax increases, are more prominent in Congress now versus in 2009
when the last federal excise tax increase was passed. And this tax would
unfavorably impact some of the more vulnerable income populations
(i.e., moderate- to low-income households),” she wrote in a research
note.
However, if the new tax increase does occur, she said,
cigarette companies could experience a rise in operating profit similar
to that seen in 2009 when the federal tax rate on cigarettes increased
by 61.66 cents per pack (from 39 cents to $1.0066 per pack) and on moist
snuff—the most common form of smokeless tobacco—by 92.5 cents per pound
(from 58.5 cents to $1.51 per pound). It also increased taxes on other
forms of smokeless tobacco.
That tax increase, to $1.01 per pack
from 39 cents pack went into effect on April 1, 2009. Philip Morris and
Lorillard took cigarette list price increases of 71 cents per pack.
Reynolds American took increases of 44 cents per pack for Camel and 41
cents per pack for Pall Mall. “These list price increases resulted in
accelerated cigarette operating profit growth in 2009 with an even
greater positive impact in 2010,” she said.
A tax increase “could
spur greater interest and trial in e-cigarettes,” Herzog said. “A
federal tax hike on traditional cigs would likely be followed by price
increases from manufacturers in excess of the federal increase, as well
as a likely uptick in state tax increases. These could raise cigarette
prices upwards of $2.00 per pack. Since e-cigarettes are not currently
federally taxed, this would widen the price gap of e-cigs versus
traditional cigs.” (CSP Daily News: www.cspnet.com)
