Governments routinely tax the poor to pay for new spending

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 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 lotteries and excise taxes on products such as alcohol and tobacco and essential services such as utilities and gas. These 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 as do middle-income earners, and more than three times as much as the highest earners, on the average.

People earning less than $10,000 annually spend twice as much on the lottery as 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 per cent) on necessities subject to excise taxes, including utilities and pubic 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 behaviours – 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.

Source: Michael Davis et al., Taxing the Poor: A Report on Tobacco, Alcohol, Gambling, and Other Taxes and Fees That Disproportionately Burden Lower-Income Families, National Center for Policy Analysis, June 28, 2007.

For text: http://www.ncpa.org/pub/st/st300/

For more on Taxes: http://www.ncpa.org/sub/dpd/index.php?Article_Category=20

FMF Policy Bulletin/ 03 July 2007