US States Turn to 'Sin' Taxes to Fill Budget Gaps
NEW YORK (Reuters) - Starved of revenues amid the US recession, several states have raised or are considering increases in ``sin'' taxes on cigarettes and alcohol in their latest strategy to address a hefty drop in tax receipts and growing health-care cos
Having dipped into rainy day funds, cut education budgets deeply and done just about everything else they could short of raising taxes, many state lawmakers are now gearing up for fights over tax increases with the well-oiled and powerful cigarette and alcohol lobbyists in their state capitals.
At least 16 states including Massachusetts and Illinois want to increase taxes on a pack of cigarettes, according to Matthew Myers of the Campaign for Tobacco-Free Kids in Washington, DC.
``Anything that'll get me to quit smoking is OK by me,'' said New Yorker Chris Moore, a smoker shivering outside a Times Square office building.
Even though the higher cost will reduce his smoking, Moore admits to avoiding New York's high prices by buying his cigarettes in New Jersey. Last week, New York lawmakers approved an increase in cigarette taxes by 39 cents to $1.50 per pack--the highest in the nation--a move Myers' group called ''a win-win solution for New York that will reduce smoking among children and adults while raising much-needed revenue to improve health-care services.''
Nebraska state Sen. Bob Wickersham introduced two bills in early January that would raise taxes on both cigarettes and alcohol to bring in an extra $18 million to the state.
``Any time revenues are in a pinch, you're going to find what many people characterize as 'sin taxes' examined as a source of revenue,'' he said.
The Sept. 11 attacks only served to worsen the effects of the national recession on states by slashing their income and sales tax collections.
Although Wickersham said money in Nebraska is needed to close looming holes in state coffers, he said that with cigarettes in particular, many who support raising taxes on a pack of smokes are more interested in reducing smoking by raising the price, especially among children.
``We could reduce consumption and therefore reduce future (health-care) costs,'' Wickersham said, adding that the real problem in Nebraska is uncontrolled spending on Medicaid costs for state residents.
BUSTED BUDGETS NEED REPAIRS
Nebraska will face a $377 million gap in its estimated $6 billion budget by 2004, Wickersham said, forcing lawmakers to start coming up with solutions now. But cigarette manufacturers are not so sure raising taxes is the way to go.
``It's an unfair and selective tax burden on lower--and moderate--income brackets,'' said John Singleton, a spokesman for R.J. Reynolds Tobacco Co. in Winston-Salem, North Carolina.
According to his company's data, 58% of adult smokers have incomes of $35,000 per year or less.
Singleton added that the states and federal government have received $88 billion between 1999 and 2001 from cigarette makers in the form of taxes and payments from the national tobacco settlement.
For those who drink, eight states, including Missouri and Alaska, want to raise taxes on beer, wine or hard liquor, according to the Distilled Spirits Council of the United States. In 2001, Washington and North Carolina lawmakers boosted a surcharge on alcohol sales and a liquor tax, respectively.
In Hawaii, Gov. Ben Cayetano submitted a proposal to double the excise tax on spirits, beer and wine. The state needs to boost tax revenues quickly to address a $152 million budget gap forecast for the end of the 2002 fiscal year in June and another $163 million shortfall at the end of the 2003 fiscal year.