Obama's 2173%, Painfully Regressive Tax Increase

It was not an April Fools' Day stunt, and it wasn't funny.

On April 1, tobacco taxes went up -- way up. The most visible increases were the roughly 160% hikes in the federal excise tax on cigarettes to $1.01 per pack from 39 cents, and chewing tobacco to 50 cents per pound from 19.5 cents.

The least visible increase was the most revealing one, because it showed just how far the government will go in search of tax revenue while protecting the very people it demonizes for public consumption.

You see, as state and federal tobacco taxes have risen over the years, more and more smokers have taken to rolling their own cigarettes and cigars. This of course requires purchasing the raw material. Until March 31, the tax on a pound of tobacco was $1.09. According to this retail source, you can get up to 600 cigarettes, or up to 30 packs, out of a pound.

You can see the "problem": $1.09 is a lot less money for Uncle Sam than the up to $11.70 (30 packs times $0.39) he was extracting from regular smokers before April 1. I have little doubt that many inside the halls of government, probably with the helpful assistance of cigarette makers moaning about "unfair" competition, were characterizing the roll-your-own smokers (RYOs) as "freeloaders."

So Congress and the president fixed that "unfair" situation by raising the per-pound tax on tobacco purchases from $1.09 to $24.78.

You read that right. That's a mind-numbing 2173% tax increase. Now the federal tax on the raw material is pretty close to the federal tax charged on cigarettes at retail, which, equivalently stated, is now up to $30.30 (30 packs times $1.01).

In government-think, this was done, I suspect, to force the RYOs to pay "their fair share." It shouldn't surprise anyone if many states follow suit and impose their own per-pound tobacco tax increases.

Though they will never publicly admit it, Congress imposed this radical tax increase on RYOs to protect Big Tobacco, the tax cash cow they love to hate, but can't live without. It's as clear an illustration as you'll ever see of how government all too often operates at cross purposes. On the one hand, it uses Big Tobacco as a whipping boy every time a study comes out showing some new harm or cost imposed by smoking and smokers. On the other hand, the government knows that if enough people ever stop smoking, or figure out how to get their nicotine fixes without going through Big Tobacco, tax receipts will dive.