Obama's first tax increase: National sin tax is effective April 1

The first major tax increase from the president who promised no tax increases on 95 percent of the population goes into effect today, April 1. This is not an April Fool's Day joke - this is a tax increase that hits approximately 21 percent of adults age 18 and over, regardless of income level, and approximately 20 percent of teenagers, many of whom are not normally considered to be among the ranks of taxpaying citizens.

The federal tax, an increase of 62 cents per pack of cigarettes, starts April 1. Here's how this translates into actual numbers, using the assumption that the average smoker smokes one pack of cigarettes per day.

At one pack a day, the average smoker will pay an additional 62 cents per day, or $226.30 per year in additional tax. The smoker who smokes two packs per day will pay an additional $452.60 per year in tax. There are no deductions allowed that might lower this tax. There are no credits available for people who are on a fixed income or who are out of work.

The Americans for Tax Reform Web site mention the following statistics:

  • 55 percent of smokers are considered to be "working poor."
  • One in four smokers lives below the poverty line.
  • On average, smokers, whose median income is a little more than $36,000, make about 30 percent less than non-smokers.

Using numbers from the 2000 census, there are approximately 218 million people age 18 and over in the United States. If 21 percent of those people smoke one pack of cigarettes per day, the federal government will collect an additional $10,360,014,000 per year.

How did they vote?

See how your Senators and Representatives voted on the 2009 SCHIP legislation:

House Roll Call Vote
Senate Roll Call Vote

There are approximately 17 million people age 14-17 in the United States. If 20 percent of those people smoke one pack of cigarettes per day, the federal government will collect an additional $769,420,000 per year.

That's a total of $11,129,434,000 per year of additional revenue for the federal government, gained in the form of a tax increase affecting approximately 21 percent of the adult population and 20 percent of the teenage population.

In addition, the new legislation imposes a 35.36 cent per cigar tax increase on large cigars and a 97 cent increase on packages of small cigars. Pipe tobacco will be taxed an additional $1.73 per pound of tobacco. Cigarette paper packages will see a tax increase of $1.93 per package. Additional tax increases will affect chewing tobacco, snuff, cigar wrappers, and cigarette tubes.

Congress created this tax to pay for the expansion of the State Children's Health Insurance Program (SCHIP), a program originally designed to provide aid to impoverished children. Using the revenue collected from smokers, SCHIP will now include children from families with up to three times the federal poverty level as well as children from high-income families in New York and New Jersey. The new tax also allows SCHIP to expand to provide dental benefits, coverage for mental illnesses, and coverage for immigrant children and immigrant pregnant women with no waiting period. President Bush vetoed this legislation twice when it came before him, claiming it would lead to "government-run health care for every American." President Obama signed the legislation in February claiming that "providing coverage to 11 million children is a down payment on my commitment to cover every single American."

You may like these other stories...

Senate Takes Different Approach from House for Highway and Bridge FundEarlier this week, according to a New York Times article, the Senate agreed to fill the coffers of the fund that pays for highway and bridge repairs with...
There it stands, your client's 100-year-old, rickety, vermin-infested barn or former hotel or whatever the darn thing once was. And she's considering what to do with it. There are two words that can help her decide...
It's not a reality—yet—but accounting software is poised to eliminate accountants. We are at a tipping point for many similar professions: online education replacing professors, legal software replacing...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.