Illinois revenue issue: “sin taxes” can’t keep pace

Even as legislators raise “sin taxes,” it is difficult for the state to bring in as much revenue from such taxes:

While state lawmakers continue to increase taxes on liquor, cigarettes and gambling, revenues from the so-called “sin taxes” aren’t keeping pace. At $1.95 billion, 2012 revenue from those taxes was almost on par with that of 2003, even though most tax rates increased significantly, according to a Daily Herald analysis of Illinois Department of Revenue financial reports…

Since tobacco taxes were raised in 2002, revenues steadily have declined to pre-hike levels as cigarette purchases dropped in Illinois. Legislators last year doubled tobacco taxes, but revenue did not keep up. After getting $609 million in tobacco taxes in the previous fiscal year, the state generated $856.5 million from tobacco taxes in the fiscal year that wrapped up a few months ago, according to the state legislature’s Commission on Government Forecasting and Accountability…

While taxes on things like cigarettes and liquor are relatively easy to sell to many taxpayers, critics say a failure to maintain these revenue levels ultimately results in higher taxes for everyone. It’s no surprise to Illinois Policy Institute Executive Vice President Kristina Rasmussen that sales and income tax rates have also increased in recent years…

The state’s sales and income tax projections are also eroded by buyers going elsewhere for alcohol, cigarettes and similar products. Rasmussen said legislators are taking a shortsighted approach to revenue enhancements instead of solving long-term debt problems.

It is more popular politically to go after sin taxes than to look at larger spending or taxing issues.

But, what counts as a “sin” is also interesting to note – it is quite a social construction. Cigarettes are seen as a huge threat to public health but are not illegal. Alcohol was once banned on a national level and there were decades of temperance movements but it too is legal and brings in a lot of revenue beyond sin taxes – think what restaurants generate. Marijuana is a growing sin tax alternative as some places look to cut costs: instead of jailing users and sellers, why not just ticket them or tax them, making money off of behavior that is still seen as deviant. Thus, it isn’t surprising as more of these traditional “sins” fail to generate sufficient revenue that new sins are identified, from red-light cameras to speed cameras to soft drinks to junk food and beyond.

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