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Dallas Think Tank Says "The Poor Finance Government" Print E-mail
by Scott Bennett    Thu, Jun 28, 2007, 08:32 AM

As Congress seeks to fund the expansion of government-provided health care for children by increasing taxes on tobacco and possibly alcohol, a new report from the Dallas based National Center for Policy Analysis (NCPA) notes these taxes disproportionately impact the poor. The report notes that governments at all levels are raising revenues in a number of regressive ways, particularly through a lottery and excise taxes on products such as alcohol and tobacco and essential services such as utilities and gas.

"Some of the same people that complain about tax cuts for the rich are astonishingly silent about many of the tax increases for the poor," said Robert McTeer, distinguished fellow with the NCPA and a member of the task force. "These taxes exist because so few people or organizations are willing to stand up and oppose them.

The report notes these taxes are popular with lawmakers because they are easy to identify, easy to collect and, in the case of taxes on "sinful" products, it is easy to summon the political will to pass them. And unlike broad-based taxes, such as a general sales or income tax, they are often paid by a small group of people that may not even realize it, because the tax is often embedded in a product's retail price. However, they are some of the most regressive taxes on the books. For example:

  -- High school dropouts who smoke spend three to four times as much of
     their income on tobacco products as professionals who smoke.

  -- People in the lowest fifth of earners who purchase alcohol spend twice
     as much of their income on it than do middle-income earners, and more
     than three times that of the highest earners, on the average.

  -- People earning less than $10,000 annually spend twice as much on the
     lottery than those earning over $100,000 annually.

  -- People earning $24,000 a year spend more than twice as much of their
     income on gasoline as those earning five times as much.

  -- And people making less than $10,000 a year spend nearly one-fifth of
     their incomes (18.8 percent) on necessities subject to excise taxes,
     including utilities and public services, and they pay almost six times
     as much of their incomes on these taxes as the highest earners.

Some advocates claim taxes on harmful behaviors -- like smoking and excessive drinking -- are justified to recoup the costs of those activities or to reduce their usage. Yet it appears that taxes on tobacco, for example, more than compensate for the social costs of smoking.

"A few consumers will quit and many will substitute lower-cost brands, but most lower-income smokers and drinkers will continue to use tobacco and alcohol," noted Michael Davis, lecturer at the Edwin L. Cox School of Business at Southern Methodist University and the lead author of the Task Force report. "Rather than discouraging their use, governments are becoming reliant on it because they need the revenues."

Further, if the true purpose of taxes on tobacco products is to recoup the external costs to society, states should levy lower taxes on safer smokeless products. Yet, about a fifth of the states charge higher taxes on smokeless tobacco than cigarettes.

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written by Rorschach , June 28, 2007

What have those people been smoking? The top 5% of wage earners paid over 90% of income taxes last year! How do they figure that the poor are funding the government? The poor aren't even paying their fair share!

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