Monday, October 01, 2007

Democrats are Stupid on Tax Policy

Betsy Newmark points to an Associated Press item on how Democrats want to pay for the SCHIP expansion--with cigarette taxes.

From the get-go, I have opposed the idea of expanding SCHIP, most because this expansion, despite all the rhetoric, is not about expanding coverage for uninsured children, but for exapnding coverage of adults who don't make that much money. If SCHIP covered only kids under the age of 18 or under 22 if in college, I wouldn't object--well not as stenuously at least. But this program will cover as many adults as children and that is not the original goal of the program.

But I digress. This is the second proposal I have seen in as many weeks to increase the tax on certain items that disproportionately affects the poor. Actually, it is the third. Democrats in Congress want to increase the federal cigarette tax in order to pay for the proposed expansion. Fine, if you want to increase the federal cigarette tax in order to stop smoking, I have no argument, but if you are using a sin tax to fund another program, there are real economic consequences. As you increase the cigarette tax, the less revenue you will bring in. People with borderline finances will, over time, quit smoking and thus stop paying the cigarette tax. Thus, as the tax goes up, the fewer people are buying cigarettes, tax revenue goes down.

Who is more likely to smoke--yep--people on the lower end of the economic spectrum. So an increase on cigarette taxes are likely to impact the very people Democrats claim to want to help--the poor. People who are middle class and wealthy can afford both the increased tax and the increased medical bills associated with cigarettes (sort of). But the poor don't have that luxury.

In other tax news, Governor "Uncle Marty" O'Malley (D-MD) is proposing to not only increase the cigarette tax, but also to increase teh sales tax. As any economist will tell you, a sales tax increase is phenomenally regressive--affecting the poor far more than it affects those in upper income brackets. While most grocery items and other essentials are not taxable items, a lot of other goods and services consumed by the poor are. For example, fast food--taxable and used far more frequently by the poor than the rich (who pay additional tax on their dining out as well, but can afford it.)

Then there is the gas tax that Uncle Marty wants to impose. Most of Maryland is paying around $2.75 a gallon for gas now. Adding a few cents a gallon doesn't sound like much until you consider how many poor Marylanders have to drive to work everyday. Making gas cost more is not going to help them in any way.

Thus, recent democratic moves to expand programs or generate more revenue simply demonstrates the stupidity of the party when it comes to tax policy. Yes, a sales tax increase and a gas tax increase and even a sin tax increase is felt broadly, but the impact on the poor (the Democrats designated constituency) is far greater than anyone else. Not wise politics and not wise tax policy.

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