President Obama's budget submission contains something for everyone to hate. Between the proposed spending cuts, higher taxes and entitlement reform, voters will find something disagreeable. All Americans, however, should agree that Obama's initiative to fund a pre-school program through higher tobacco taxes doesn't make sense.
Obama wants to create a preschool program for all four-year-olds from low- or moderate-income families. The money needed for the program would be raised by an increased tax on tobacco products. The expected revenue from the tax is "roughly" $78 billion over a ten year period. Unfortunately, the idea and the numbers are flawed.
While Obama talks about increasing taxes on the rich, this tobacco tax will actually affect lower-income families much more than other economic groups. There are twice as many low-income smokers as there are at the highest income level. The revenue generated from the proposed increase will come more from low-to-moderate income families than high-income ones. These are the same people Obama wants to help.
The tax increase will also reduce the amount of smokers. The Campaign for Tobacco Free Kids states that a 10% increase in cigarette prices results in a 3-5% decrease in consumption. Based on this, the extra 94 cents per pack will lead to a corresponding decrease in smoking. Unfortunately, it is difficult to determine how many smokers will be left to produce the expected revenue.
The Obama initiative is also flawed since the revenue stream will be reduced over time. The numbers of smokers has declined and will continue to in the future. This problem, matched to expected program growth in the future, translates into an unsustainable program by design.
Ultimately, the reduction in smokers will reduce revenues for the program. This will lead to higher tobacco taxes or moves to fund the program through other means. That means higher taxes in one form or another for the rest of Americans.
Well, smoke them if you got them. We have daycare to support.