Monday, 22 August 2011

Cigarettes and Income Taxes Link

The City of Columbus, Ohio was greeted by a number of Ohio State University medical students and individuals from the Investing in Tobacco-Free Youth Coalition in March of this year. The group touted a poll which found that more than 60% of Ohio voters favored a tax increase of $0.75 per pack of Classic cigarettes and nearly the same percent favored a larger tax of $1.25/pack.

A similar poll was conducted in North Carolina earlier this year. It found that about two out of every three likely voters supported a cigarette tax increase of a dollar per pack in the state. The Executive Director for the North Carolina Alliance for Health stated that the tax increase could provide another $338 million to the state's treasury.

More money for the state government was also given as a benefit for the proposed tax hike in Ohio. "As the state of Ohio faces a severe budget deficit, this survey clearly demonstrates the fact that the majority of Ohioans support a cigarette tax to help Ohio eliminate the state deficit," said Shelly Kiser, Director of Advancement, American Lung Association of Ohio.

These discussions regarding the basis for increasing cigarette taxes and the supposed benefits from the tax hikes provide an interesting and informative parallel in relation to federal income taxes and the budget. Whether it's cigarettes or income taxes, the debate is bathed in class warfare.

According to the Centers for Disease Control, 20.6% of Americans smoke. Therefore about 80% of Americans do not smoke. That 80% is relatively close to the 60% of Ohio voters and two-thirds of North Carolina likely voters who are in favor of tax increases on cigarettes. So, it makes sense that a majority of those surveyed would favor a cigarette tax hike -- after all, it wouldn't have much of an effect on them.

But, what about the other 20% who do smoke? There is little doubt that a large majority of them would oppose such a tax increase, as that's just more money out of their pocket. Yet, even if all of them responded to a poll as opposed to such a measure, the poll would still likely show a majority of people in favor of increasing taxes on cigarettes.

Non-smokers, again the 80% of Americans, presumably care little if the tax per pack is increased by 75 cents, $1.25, or even $100 more per pack, as they don't pay the tax.

Now, enter the deficit and income tax debate, which is likely to be a major issue into the 2012 elections. In the same way that non-smokers don't pay cigarette taxes, we have a large number of Americans who do not pay income taxes and that has a major impact on polls regarding taxation.

Fifty-one percent of Americans currently pay no federal income taxes...none! This does not mean that they do not pay any taxes at all. They pay sales tax, property tax, and perhaps other local taxes. However, like those who do not pay pay cigarette taxes, these 51% pay nothing in federal income taxes.

Simply put, if you pay zero percent in income taxes and a politician talks of the need to increase taxes, he or she is nearly always talking about increasing the percentage rate of those already paying taxes. If I pay no income taxes, I don't care if tax rates are increased. I don't have any skin in the game, so to speak.

Zero percent increased by any percent is still zero! Rates could go up to 100% for those paying income taxes and it has no impact on my income tax rate and therefore has no direct impact upon my wallet. Again, better than half of America fits into this category.

To see how this skews the debate, consider a Washington Post/ABC News poll conducted July 14-17. It found that 72% of Americans would support increasing taxes on those earning more than $250,000 per year. Liberals and those who support higher taxes during our recent debt ceiling debate might point to this poll and say that there is overwhelming support for such rate hikes among Americans-perhaps even among "American taxpayers".

In fact, Senator Bernie Sanders of Vermont, a so-called "Independent", though he traditionally votes Democratic, opined such a notion in a recent op-ed in the Wall Street Journal. He stated, "Americans want shared sacrifice in deficit reduction", while referencing the previously mentioned Washington Post/ABC News Poll.

However, Senator Sanders fails to mention that 54% of those surveyed in that poll made less than $50,000 per year, while 46% made over $50,000 per year.

Why is that $50,000 figure an important number? Consider that during the 2009 tax year, a family of four with at least two dependent children under the age of 17, and with household income of $50,000 or less were unlikely to pay any federal income tax.

Therefore, this group was asked about tax policy when they don't pay any federal income taxes in the same way that non-smokers are asked about taxes on cigarettes that they will not buy and therefore upon which they will not be taxed. Obviously, if it's not your group that is being taxed, your view is biased towards increasing taxes on the other group. This is especially the case if you somehow benefit from the taxes being paid by the other group.

That's exactly what happens with the cigarette taxes. Raising those taxes results in more money into the State's treasury to dole out as it sees fit. In the same way, raising taxes on the 49% of Americans who pay federal income taxes means more money into Uncle Sam's coffers. And, given that those making under $50,000 receive more government assistance and benefits than those earning over $50,000, the former group would naturally support such tax policy.

It's this same rationale that naturally leads a majority of Americans to support raising taxes on the so-called rich. If roughly 1% of Americans earn $250,000 or more, and there are calls to raise taxes on these individuals, then it should come as no surprise that a majority of Americans would support such a tax increase.

Yes, raising taxes on that group stymies economic growth, but the direct impact of a tax hike is only on this small portion of Americans, so we should expect every poll that asks a similar taxation question to show a majority of Americans in favor of such tax increases.

Whether we're talking about increasing cigarette taxes or income taxes, each is an illustration of class warfare at work and the ignorance of the majority group's dependence on the minority group. The 80% of Americans who don't smoke are reliant on the 20% who do, because the tax on cigarettes provides millions of dollars into each State's treasury and some of the 80% benefit from this money.

The 51% of Americans who don't pay taxes are somewhat dependent on those who do pay income taxes. The top 1% of earners account for 38% of total taxes and the top 10% of earners account for 70% of total tax revenue. So, when the 51% of Americans are asked if taxes should increase on those earning $250,000 or more and they answer "yes", they are essentially biting the hand that feeds them.

Look for a plethora of these income tax polls, all of which are naturally skewed, to be released during the election season, as the Left uses its classic class warfare strategy to divide and conquer the American voters.

No comments:

Post a Comment