I contributed a short article about new sin taxes and the recession to this week’s Lars Larson newsletter [pdf]. Jan from Cascade Cigar has a piece in there too. Since the newsletter is in pdf format, I’ve copied my submission below the break.
The Wages of Sin Taxes
People who indulge in unhealthy or unpopular products are an easy target for governments eager to grab more money. They’re an even easier target in today’s economic downturn, as dwindling state budgets force politicians to get creative about finding new sources of funding. (Unfortunately, they’re rarely so creative about finding ways to cut spending.)
The year began with a significant hike in federal tobacco taxes to fund SCHIP, the State Children’s Health Insurance Program. Providing children’s health care is not a hard sell under any circumstances, but doing so by taxing smokers guaranteed that the bill would sail through Congress and win Obama’s signature. Cigarette smokers will soon pay $1 per pack in federal taxes, up from 39 cents. The cigar tax cap has been raised from 5 cents a cigar to a little over 40 cents. Roll your own tobacco is hit hardest, jumping from a about $1 per pound to nearly 25 bucks.
These new taxes are bad news for smokers but they’re even worse news for state governments. Since SCHIP’s taxes will reduce cigarette consumption, states will be deprived of the tobacco revenue they’ve come to rely on. They will have to find new sources of tax money by either raising tobacco taxes even higher or moving on to other targets. Which will they choose? Probably both.
Arkansas doubled its cigarette tax on March 1. Michigan may double its tax on all tobacco products except cigarettes. Mississippi, Oregon, Ohio, and North Carolina are contemplating hikes of their own.
Oregon is leading the way on alcohol with a proposal to take its beer tax from one of the lowest in the nation to by far the highest. Idaho has followed suit with its own proposal. Even Kentucky, home to tobacco fields and bourbon distilleries, is set to increase taxes on cigarettes, booze, beer, and wine.
And then there’s the so-called “skin taxes.” If sex sells, why not tax it? Lawmakers in Washington, Tennessee, California, and elsewhere have toyed with the idea of taxing pornography, escort services, and strip clubs.
But when it comes to new taxes, no one can beat New York. Governor David Paterson recently proposed 137 new and raised taxes. Among the items on his hit list are beer and wine, non-diet sodas, cigars, and even music downloads.
Even PETA is getting in on the act. They suggest that states slap a ten cent sales tax on every pound of meat.
The economic downturn gives every interest group a chance to tax the things they find sinful. As state budgets slip into the red, we’ll have to remain ever vigilant against the nannies who will use fiscal woes as an excuse to pick our pockets.