Throughout history, governments have padded their coffers with taxes on the addictions and predilections of the populace. Current taxes on alcohol, tobacco and gambling help state governments meet their budget requirements without making the residents feel overburdened with taxes. This election year provided voters with several opportunities to accept or reject additions and increases in sin taxes at the state level, and most of these measures were passed.
The fact that this was a presidential election year with record turnouts may have had little impact on the voter response to sin tax measures. If anything, it would appear that the record number of votes received in favor of adding or increasing sin taxes represents more of a mandate than it would in slow election years.
With many state budgets stretched to the limit and the added issue of sales tax dollars being siphoned off to online Internet sales, states are ready to take their tax money any place they can get it.
In Montana, for example, 63 percent of voters agreed to pass an initiative to increase the state tax on cigarettes by 140 percent, from 70 cents to $1.70 per pack. Only a year ago, the state increased the cigarette tax from 17 cents to 70 cents per pack. The total tax increase on smokers is 900 percent over a two-year period. A group of Montana physicians came out in favor of the increase, indicating that they believe that the higher tax will deter teenagers from starting smoking.
Neil Peterson, administrator of the Montana Department of Revenue Customer Service Division, says that the state doesn't expect the tax increase to deter current smokers, and that deterrence was not the reason behind the initiative. "It's not going to cause them to stop smoking," he said. "Smokers just say it's going to cost them more money. The reason for the tax was to fund some health care programs."
Nearly half of Montana's revenue resulting from the increased tax on cigarettes and other tobacco products will go to state health programs, including the Children's Health Insurance program, increased Medicaid services and programs to help small businesses provide employee health insurance. The balance of the revenue will be allocated to state veteran's nursing homes, the state building fund and the state's general fund.
The easy way out of the red
Record deficits are causing many states to look at alternative measures for increasing taxes. "When you start needing money for health care and education, and people aren't willing to pay more taxes, it's easier to have an election on certain taxes like sin taxes and pull it off," said Paula Ross, communications director for the Oklahoma Tax Commission. Oklahoma passed a variety of measures this fall geared toward changing the way tax money is collected in the Sooner state.
A new state lottery has been created in Oklahoma, with net proceeds after prize money and administrative costs to be targeted for education. Targeting the money seemed to be the catalyst to getting the measure passed. "Many years ago they had a lottery vote and that didn't go so well," said Ross. "Having it deemed for education is probably partly the reason that it was so popular this time." The lottery measure was passed with 65 percent of the vote.
Oklahoma also passed a new tax on cigarettes. Previously there was a sales tax on cigarettes. Now the sales tax has been replaced with a flat 4-cent-per-cigarette tax, and other tobacco products are taxed as well. Ross speculated that part of the reason the new cigarette tax passed is that the measure also provided for a cap on the income tax rate, and exemption from income tax for certain amounts of retirement income, and also that the revenue from the cigarette tax is targeted for health care-related programs.
A cigarette and tobacco tax increase also passed in Colorado, raising cigarette taxes from 20 cents per pack to 84 cents per pack, and raising the tax on tobacco products to 40 percent of the manufacturer's list price, up from 20 percent. More than a referendum or an initiative, the Colorado tobacco tax increase is an amendment to the state constitution. Much of the revenue from the tax, anticipated at approximately $175 million per year, will go toward tobacco use prevention efforts, such as education programs, stop-smoking programs, health coverage for children and preventative health screening for low-income adults.
"This was not pitched to the public as a sin tax," said Ro Silva, public information officer with the Colorado Department of Revenue. "It was pitched as an effort to do more smoking prevention and health education."
The presidential election wasn't the only voter controversy in Ohio this year. Residents of Columbus voted for a citywide ban on smoking in public buildings, including bars and restaurants, and places of employment. Even sole proprietors are included in the ban if their place of business is open to the public. While the city isn't imposing a tax per se on smoking, business establishments that fail to enforce the smoking ban will face a possible $150-per-incident fine.
The Columbus smoking ban has been met with mixed reactions. Restaurant and bar owners anticipate being hardest hit by the ban, and there is some concern that some business establishments will be forced to close if customers choose to abandon the non-smoking venues in favor of suburban restaurants and bars that can still permit smoking. "Everybody is hoping the suburbs will follow suit and pass a smoking ban," said Gail Baker, executive director of the Central Ohio Restaurant Association. "Several [Columbus suburbs] have passed or have pending some kind of smoking ban."
The bar and restaurant owners may object to banning smoking in their business establishments, but overall, sin taxes, particularly those that tax smoking and purchases of tobacco products, are encountering less and less resistance from voters and the general public. Continuous pressure to stop smoking and the popularity of stop-smoking programs have reduced the number of smokers to a minority.
Peterson estimates the quantity of smokers in Montana is down to 19 to 20 percent. Nationwide, the American Cancer Society estimates that approximately 22 percent of U.S. adults are smokers, which means that the majority of people voting on smoking issues don't smoke. "People are more likely to vote for a tax increase if it doesn't impact them," said Peterson.
Big bottles, bigger revenue
Another interesting sin tax-related issue popped up on the ballot this year in South Carolina. The law stated that bartenders in South Carolina could only dispense liquor from the tiny 1.7 ounce bottles - like those used on airlines.
In the 1970s, nearly half the states had laws requiring the use of the mini bottles. Until this year's election, South Carolina was the last holdout. Now, thanks to a new amendment to the South Carolina constitution, legislators have been given the right to change the liquor law in favor of larger bottles.
A revenue analysis by a member of the University of South Carolina School of Hotel, Restaurant and Tourism Management predicted that the effect of shifting from mini bottles to larger liquor bottles would have a significant impact on state tax dollars. The study calculates that revenues from the tax on sales of alcohol in South Carolina will double once larger bottles become the norm.
Danny Brazell, public affairs director for the South Carolina Department of Revenue, pointed out that the potential change in tax revenue is all speculation at this point. "What the referendum did was give the legislators the right to make the change," he said. "There's not a mandate on how that would be taxed yet. They could tax the bottles; they could tax the drinks."
If taxing the sin activities alienates fewer residents than increasing sales and income taxes on the general populace, it's a safe bet that states will continue to smoke out additional taxes drop by drop, or drink by drink, if necessary.
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