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Mon March 17, 2014
Sin Taxes Won't Solve Illinois' Budget Troubles
When Illinois lawmakers are in need of more revenue, they often turn to sin.
Sin taxes, that is.
Those are taxes placed on items that can be considered undesirable, like cigarettes, alcohol or gambling.
But are they really an answer to the state's budget problem? Assistant Professor Julian Reif with the Institute of Government and Public Affairs at the University of Illinois took a close look. As part of the Institute's Illinois Budget Policy Toolbox project, he reviewed the pros and cons of counting on sin taxes for financial relief.
"Some people view these activities as immoral on some level," Reif said.
It's an easy argument to make. Tax those things we know are bad for us. Not only can the state make money, but it might lead to people reducing or even quitting such habits as smoking and drinking.
"Politicians find this a lot less unpopular to raise taxes on these goods as opposed to raising the income or sales taxes," Reif added. He points out some also view smoking, drinking and gambling as voluntary acts.
But his study showed while the state can bring in some money, raising taxes on these activities drives people to other states, especially impacting border communities in Illinois. In 2009, the state increased the tax on alcohol and just last year doubled the cigarette tax. Chicago is now the most expensive city in the country to buy a pack.
Reif points to numbers that estimate modest increases in the taxes with no one leaving the state would bring in about $330 million dollars a year. At the same time, an earlier IGPA study found the state could face a $14 billion dollar deficit in the next decade. That amounts to sin taxes covering about 3 % of the gap.
Reif's study also shows poorer residents spend a higher percentage of their income on these items, which means they pay a disproportionate share of the taxes. Reif says policy makers should view sin taxes as just a small part of the strategy to raise revenue.