- The Washington Times - Wednesday, October 26, 2011

One man’s sin is another man’s revenue base, at least when it comes to Uncle Sam’s tax coffers.

Federal and state governments annually rake in $96 billion in revenue fed by Americans’ appetites for easy money, nicotine and booze, according to an analysis by The Washington Times. Take away the taxman’s take on gambling, drinking and smoking, and many jurisdictions would be in serious financial straits.

All told, the gambling, tobacco and alcohol industries individually pay $24.9 billion, $44.3 billion and $27 billion, respectively, in annual state and federal taxes, a figure set to rise as cash-strapped government officials seek new money sources in a struggling economy, according to the most recently available data.

For example, Delaware receives $659 million of its total state revenue - almost 8 percent - from the gambling, tobacco and alcohol industries, ranking as one of the top 10 states dependent on so-called “sin taxes” in an analysis by the financial website 247WallSt.com. By June 30, the lottery alone contributed $287 million to the state’s general fund - an $11.5 million increase over the last fiscal year.

If Delaware gamblers all of a sudden refused to ante up, “we’d be having to replace a very significant piece of revenue,” said David Gregor, deputy secretary of finance at the Delaware Department of Finance.

Sins taxes breakdown graphic
Sins taxes breakdown graphic more >

“To claim that taxes have little impact on the industry is fundamentally flawed,” said David B. Sutton, a spokesman for Altria Group Inc., parent company for cigarette giant Philip Morris USA.

Sin taxes are applied to products or actions deemed socially undesirable, such as gambling, smoking, drinking and even consuming sugary drinks and fattening junk food. These extra fees play a big part in the amount of revenue generated by state and federal governments alike and are said to help close budget gaps as well as deter sinful behavior.

But Tim Haab, a professor of developmental economics at Ohio State University, noted in a recent analysis that tax collectors are exploiting the fact that smokers, drinkers and gamblers tend not to cut back on their vices, even with higher taxes.

“That’s right; so-called sin taxes don’t reduce the sin, they raise the revenue,” he noted.

The original purpose for many was to discourage unhealthy habits and addictions, but often it’s the governments that impose them that become addicted. And often the sin taxes wind up effectively being imposed on lower-income consumers.

Low-income Americans “will lug the load of any sin tax,” Katrina Trinko wrote in a recent op-ed column in USA Today. “Unlike income taxes, which exempt the poorest and have lower rates for those making less, there’s nothing progressive about sin taxes.”

Still, she noted, “politicians have rushed to raise these new levies as if they’re the policy equivalent of rescuing kittens.”

States are getting increasingly creative in finding new sins to tax, too: New York officials have battled all the way to the state Supreme Court in Albany to defend their right to impose state sales taxes on clubs that employ lap dancers, rejecting a lawsuit by the owner of an adult “juice bar” that the club is exempt from such taxes because its dancers are artists engaged in tax-exempt choreographed performances.

Some defend the sin taxes as the only way to finance the government programs designed to reduce the sin. Smoking-cessation programs, for example, often rely heavily on the taxes paid by smokers each time they light up.

Laurent Huber, executive director of the Action on Smoking and Health, said at a United Nations health summit last month that taxing tobacco products would be good for both the economy and public health. He cited a report that said “price and tax measures are an effective and important means of reducing tobacco consumption.”

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