Thursday, March 31, 2005

Sin Tax Philosophy
As I indicated in an earlier post, I am thrilled that states are starting to levy higher taxes on cigarettes--especially in those states like KY that have such paltry cigarette taxes. But, there does seem to be a bit of a dilemma, doesn't there? What happens if the education and the deterring factor of the tax actually take hold and smoking seriously drops off? What happens to the tax base? Ideally, things like cigarette taxes would be reserved for medical costs that the state faces as a result of the dangers of smoking. But instead that money typically is piled into the general fund, along with the alcohol taxes (and here in TN there's a new proposal to add an entrance tax of a couple bucks onto strip club entry fees). My question is, is there a danger, even just a cultural one, in states getting too close, and too dependent, on its citizens engaging in activities that are unhealthy one way or another?

And this is especially on my mind having read a NYTimes story on states' new found love of gambling revenue. There are no direct costs that the state incurs as a result of people engaging in gambling abuse or addiction. So this is just a way to raise money. Like church groups that raise funds with a bingo game. Is this really a proper way for the state to raise money? On one hand, if it's going to be legal, it might as well have a healthy tax. But in this case, we have examples of gambling being made legal for the explicit purpose of shoring up the tax base since the public refuses to sacrifice as a community.
Because of gambling, South Dakota officials were able to push through a 20 percent reduction in property taxes a decade ago by increasing to 50 percent the state's share of gambling revenue from video lottery terminals, up from 37 percent.

A property tax reduction was also the main argument in Pennsylvania for legalizing gambling when the Legislature last year authorized slot machines at racetracks and casinos after years of intense opposition.
Is this just a good, clever way to fund the budget? (what's next, a state wide bake sale or silent auction?) Or does this mark--like I fear--the tacit approval of a funding system that requires fewer and fewer citizens to pay their fair share, so long as we can leverage that desperate (for a drink, a smoke, some action) minority for some extra cash? And then, to top it off, doesn't the state have to hope, deep down, beneath the public service announcements, for the ranks of that group to increase? The more the better?

To be clear, I am a strong supporter of a very hefty cigarette tax. It makes sense for many reasons-including a deterring factor for teenagers to start. But I do wonder if there is a downside (like, what is the state's real incentive to discourage smoking should the revenue start to outweigh the costs? or is that not even possible); and I wonder if it's not part of a troubling trend in state revenue streams.

On the other side of the spectrum is a federal tax proposal that doesn't make alot of sense to me (or to Kevin Drum), even though it's the option preferred by one of my heroes, Frank Zappa. Replace the income tax with a consumption tax, and send monthly rebates to cover the taxes on necessities.

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