Obama Breaks Tax Pledge, Signs SCHIP

Obama Breaks Tax Pledge, Signs SCHIP
April 1, 2009

Barely two weeks after assuming the presidency, Barack Obama signed into law a bill expanding a health insurance subsidy and breaking one of the central promises of his candidacy.

Obama’s February 4 signing of the State Children’s Health Insurance Program (SCHIP) expansion bill more than doubled the federal cigarette tax, even though he had pledged he would not raise taxes on Americans earning less than $250,000 a year. Taxes on various classes of cigars also increased.

SCHIP subsidizes health insurance for children—and some adults—in families within a certain income range, which differs among the states.

The bill raises the federal cigarette tax 156 percent, from 39 cents to nearly $1.01 a pack. The 61.6 cents per pack tax hike will fall disproportionately on lower-income families, whom the president had vowed to protect.

‘No Increase in Any Taxes’

During the campaign, Obama said, “I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”

Before the Senate vote to approve SCHIP expansion, opponents tried to remind him of his promise.

“During your campaign, we were pleased to hear you repeatedly assure all Americans making below $250,000 that they would be protected from increased taxation. We therefore hope you will join us in calling on Senate Majority Leader Harry Reid and Speaker Nancy Pelosi to remove the $77 million in increased tobacco taxes from the proposed SCHIP expansion package,” Sens. Jim DeMint (R-SC), David Vitter (R-LA), and Richard Burr (R-NC) wrote in a January 27 letter to the president.

‘Reverse Robin Hood’

Their plea fell on deaf ears. Obama’s signature authorized a $32.8 billion program expansion over the next four-and-a-half years. Phil Kerpen, director of policy for Americans for Prosperity, described this as hypocrisy.

“The median income of smokers is $36,300, while eight states already offer SCHIP to families making up to $63,600 a year, and New Jersey goes up to $74,200,” Kerpen said. “The new SCHIP expansion will provide federal funds for states to expand these programs to even higher-income families.

“In other words, many poor smokers will be forced to pick up the tab for health care for families that make more than double what they do,” Kerpen said. “And this reverse-Robin Hood maneuver is taking place when Democrats, who supposedly fight for the little guy, control all the federal levers of power.”

‘Just a Warm-Up’

Grover Norquist, president of Americans for Tax Reform, was hardly surprised to see Obama sign the tax increase.

“There was never really any doubt whether or not President Obama would sign into law this tax increase,” Norquist said. “After all, Congressional Democrats, of which he was one not too long ago, have long seen SCHIP as the proverbial camel’s nose under the tent to expand government-run health insurance—‘spring training,’ as [White House Chief of Staff] Rahm Emanuel has called it.

“But it’s more than spring training for that,” Norquist said. “It was also just a warm-up for what’s coming down the pike in terms of tax increases.”

Tobacco Use Falling

A 2007 Heritage Foundation study estimated Congress will need more than nine million new smokers to generate enough tobacco tax revenue to support SCHIP at proposed funding levels over the long term. Yet even without the tobacco tax increase, which will take effect April 1, tobacco use in the United States is declining.

“Essentially,” said Norquist, “this tobacco tax increase is no more than a placeholder for the next tax increase, for which we won’t have to wait long, I am sure.”

Kerpen, too, expects Congress and the president to add new burdens on the nation’s taxpayers.

“With the no-tax-hike-except-on-the-rich promise already thrown away, and a very long spending wish list on the minds of Nancy Pelosi, Harry Reid, and Barack Obama, all Americans need to worry about how soon it will be their turn for higher taxes,” Kerpen said.


Sandra Fabry (sfabry@atr.org) is government affairs manager at Americans for Tax Reform.