Government, SCHIP And The Sin Tax Revisited

Follow-up to: Government Loves Cigarettes

The problem, as I see it, is that government feels that the pool of American tax dollars is bottomless and it is their “responsibility” to create a new tax to fund every altruistic concept. I just don’t believe that government has unlimited authority to take every noble motive and make it theirs. The government has to be given parameters and it’s those restraints that will always cause controversy.

My argument isn’t with the issue of smoking, it’s with the government. I’m just tired of the back door tactics they use to get programs funded and going that will not make it through the front door.

Our government is contentious on purpose; if an issue can’t gain consensus then it should not be ready for prime-time. By providing $35 to $40 billion in initial funding for the SCHIP program we’ll have another huge bureaucracy formed over night that will be in the order of Medicare and Medicaid. It’s the American way to build and grow and the SCHIP would become a launching platform for nationalized healthcare.

Since it’s the implied goal of these “taxes” to further the cessation of smoking, it’s also reasonable to assume that the programs funding will also dry-up. Exactly what form of funding will take place as the sin tax revenues disappear? What are the SCHIP mandates and how are they going to be implemented. How many children will be covered, what will be accomplished by this funding and what will their needs be 5 or 10 years out.

Are we just going to provide funding and then answer these questions based on Congresses directive to go forth and spend. No one wants to deny uninsured children healthcare, but this situation is far from critical and shows no signs of becoming one. There is plenty of time to do it right.

Government Loves Cigarettes

Or how to raise taxes $15.25 billion a year 61¢ at a time.

Politicians love to demonstrate their concern over the welfare of the American people by piling on the anti-tobacco bandwagon. At the same time fall all over themselves to figure out how they can tax, sue and squeeze more money from tobacco.

Currently the Senate Finance committee is passing an increase of the cigarette tax from 39¢ to $1.00 or a 156% increase. Of course this added revenue will be used to finance a health plan program for children. What happens when everyone stops smoking? I guess they will just raise taxes.

While the Democratically controlled Congress shouts about taxing the rich and helping the poor, they continually find it easier to impose taxes that impact the lowest wage earners the most. If you smoke one pack a day that will equate to a $222 annual tax increase.

From a Reynolds American Inc. Press Release (pdf):

Does The Right Hand of the Senate Know What The Left Hand is Doing?

WINSTON-SALEM, N.C. – July 17, 2007 -- This week, two Senate committees will likely approve separate, but diametrically opposed, pieces of legislation related to tobacco products.

On the one hand, the Senate Finance committee is expected today to increase the tax on tobacco products by 156 percent to fund expansion of the SCHIP program. The increased taxes, falling primarily on middle- and lower-income tobacco users, will generate an additional $35 billion in government revenue.

Federal and state taxes and payments already account for more than 50 percent of the average cost of a pack of cigarettes.

On the other hand, the Senate HELP committee is scheduled on Wednesday to consider and likely approve legislation granting virtually unlimited regulatory authority over tobacco products to the Food and Drug Administration.

A chief proponent of the FDA legislation, Dr. Greg Connelly of Harvard University School of Public Health, testified before the HELP committee in February that the bill “could turn Marlboro into lard: legal, but no one uses it.”

“These consecutive committee actions beg the question of whether the Senate is trying to have it both ways: sell more cigarettes so the federal government can have billions of dollars more in tax revenue, while at the same time regulating tobacco products to the point no one will use them,” said Tommy Payne, executive vice president of public affairs for Reynolds American Inc.

Politics In Maryland Cost Residents $5,300 Per Year

The Washington DC Examiner Newspaper (no author given) printed an interesting article concerning a $1 ½ billion shortfall in the states budget.

The article says that Maryland has a current budget of $30 billion and Gov. Martin O’Malley has ordered legislators to cut $200 million from it. The headlines showing that the Gov. has ordered $200 mil. in cuts looks like he is on top of things and is acting responsibly, when in fact, these cuts represent only 13% of the problem.

The estimated 2005 population of Maryland is 5,600,388, and the State will spend over $5,300 for each resident. My question is; what are you getting for that $5,300?

Did You Get A Tax Refund

There are several issues before Congress that could cost you thousands. The current hot button issue is the AMT. The Alternative Minimum Tax is estimated to add $2,000 to 23 million Americans tax bill this year (2007 tax year).

Alexandra Marks and Ron Scherer, staff writers for The Christian Science Monitor write an excellent article that should be read if this interests you. From the article:

“An estimated 4 million Americans will be subject to the higher AMT this year. The number would have been 11 million, but Congress approved a temporary patch last year. Unless lawmakers apply another patch or pass a comprehensive reform, that number will jump to as many as 23 million people for the 2007 tax year.”

Over on the Captain’s Quarters blog, Chris Muir, who does Day-By-Day Cartoon Inc. pokes fun at the situation in Congress.

On the Heritage Foundation website, Andrew Grossman is Senior Writer and Editor at The Heritage Foundation, penned an article back in November, 2005, When Would the President's Tax Cuts Expire? The following is a list, from that article, of the taxes cuts that have already or will run out:

• Bonus Depreciation: This provision, which changes depreciation schedules for businesses in a way that encourages investment, expired on January 1, 2005.

• Alternative Minimum Tax: Exemptions will decrease by $6,500 per filer on January 1, 2006.

• Small Business Expensing: On January 1, 2008, the maximum amount that a business may deduct will fall from $100,000 to $25,000, which will not be indexed to inflation. Also on that date, the cap for the value of qualifying property will shrink from $400,000 to $200,000, making it more difficult for small businesses to take advantage of this deduction.

• Capital Gains: Rates will rise to 10 or 20 percent, depending upon income, on January 1, 2009.

• Child Credit: This credit will shrink from $1,000 to $500 per child on January 1, 2011.

• The 10-Percent Bracket: This bracket will be eliminated on January 1, 2011, raising the income tax burden of many workers by 5 percentage points.

• The 15-Percent Bracket for Joint Filers: On January 1, 2011, the upper limit of this bracket will shrink from 200 to 167 percent of the upper limit for single filers, creating a marriage penalty.

• Standard Deduction for Joint Filers: On January 1, 2011, this will shrink from 200 to 167 percent of the standard deduction for single filers, creating a marriage penalty.

• The Estate Tax: The top rate for this tax will increase to 60 percent on January 1, 2011, and the value of an estate exempt from taxation will shrink to $1 million, which is less than it is today.

• The Income Tax: Rates will increase between 3 and 4.5 percentage points in each bracket on January 1, 2011.

• Dividends: Rates will rise to match standard income tax rates on January 1, 2009.