It's strange how two people can look at the exact same set of facts and come to opposite conclusions. Today I saw a chart published by the conservative Tax Foundation that they use to criticize a proposal to increase federal cigarette taxes - and suddenly I think I might support this proposal for the first time.

Before the Senate passed its budget two weeks ago, members approved an amendment proposed by Gordon Smith (R-OR) to raise the federal tobacco tax from 39 cents to a dollar per pack and use the money to expand the State Children's Health Insurance Program (SCHIP). The amendment is more of a statement of Congress's goal rather than binding legislation. It doesn't require Congress to act but just clears away any hurdles in the budget process as long as the SCHIP expansion is actually paid for by the tax increase.

We generally frown upon cigarette tax increases because they are regressive. Since low-income people don't smoke any less than wealthier people and pay the same taxes per pack of cigarettes, these taxes take a larger share of their total income. It's true, or course that expanding health care for children is an extremely important priority, and SCHIP is a progressive program targeted at low-income and middle-income families. And frankly, we should be glad when Congress actually wants to pay for an initiative as opposed to just increasing the national debt. But we usually prefer to find a way to pay for things that doesn't cause the tax code to become less progressive.

The Tax Foundation put out a paper showing how the proposal would affect different income quintiles. The chart near the bottom of the paper shows SCHIP spending, minus the cigarette tax paid, on each quintile. The bottom two come out ahead, the middle basically comes out even, and the top two quintiles lose a bit. People in the top income quintile, for example, lose about a hundred dollars a year. This is logical, since wealthier people will receive little benefit from SCHIP so the cigarette taxes they pay will outweigh any added benefits from expansion of the program.

The Tax Foundation, remarkably, sees this as justification to oppose the Smith proposal. I look at this and suddenly feel much better about the Smith proposal. The cigarette tax increase is regressive in itself, but the proposal as a whole is actually progressive.

Thank you Tax Foundation, I feel much better now.

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