The Corner

Guess What? Everyone’s Taxes Are Going Up

Under the Obama budget, that is. I have said before that if lawmakers don’t cut spending and reform entitlements, I believe that taxes will have to go up on everyone, because raising taxes only on higher-income taxapayers will never be enough.

But that’s well into the future right? Not quite. While the president has promised over and over again that he would not raise taxes on people making less than $250,000, a new study by the Tax Policy Center shows that, under his budget, in FY 2015, some 14 percent of new revenue will come from those making less than $200,000. Reporting on the study, the Washington Post explains where the lower-income taxpayers’ tax hike are coming from:

One would raise taxes on tobacco products, affecting rich and poor smokers alike — the tax on a pack of cigarettes would increase from $1.01 to $1.95.

The second proposal is more technical, affecting the value of the personal exemption and standard deduction as well as the income thresholds for different tax brackets. These are adjusted upward each year to account for inflation.

A new formula would increase them more slowly, meaning that deductions and exemptions would have slightly less value each year than they do under the current system and additional income would more rapidly shift an earner into a higher tax bracket.

Incidentally, I always find interesting when lawmakers are calling for a “sin tax” like this tobacco levy, putting forth arguments like those Gene Sperling suggests here:

“That is a place where we are making a decision that we believe that additional revenue is justified for the positive that it serves in terms of early childhood and the deterrent effect that it has on smoking,” National Economic Council Director Gene Sperling said this month at a news briefing.

Setting aside the question of whether the government should be interfering in what we choose to smoke (or eat or drink for that matter), the tax can’t achieve both goals. If it does indeed discourage smoking, we can’t count on much revenue to fund childhood education, and vice versa. You can’t have it both ways. (For more on this, read this piece by Reason’s Peter Suderman.)

For more on the tax side of the president’s budget, see the detailed work of the Tax Policy Center. 

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