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 Many
New Year’s resolutions may include kicking bad habits, but even when the
government tries to curb smoking, drinking and caloric intake by imposing one of
the heaviest tax burdens it’s still a matter of personal choice.
If Illinoisans’ celebratory excess this holiday season is to be followed by
resolution to be better next year, maybe politicians, too, need to end the
bender and cut back their penchant for excise taxes.
A 2019 study from the nonpartisan Tax Foundation found Illinois captured the
sixth-highest amount per capita in excise taxes during fiscal year 2016.
Excise taxes are a “tax on a specific good or activity” and include “sin taxes”
such as those on alcohol, tobacco, gambling and marijuana.
In fiscal year 2016, Illinois collected an average of $788 from every person in
state and local excise taxes, according to the Tax Foundation. This exceeded
each of Illinois’ neighbors by at least $100 per person.
Illinois’ myriad excise taxes are compounded by those imposed by municipalities
at the local level. Chicago, for example, recently levied a 9% “amusement tax”
on concerts and sporting events – which it expanded to streaming services such
as Netflix and Hulu.
Illinois has seen many new and increased taxes since the study, including new
taxes on recreational marijuana, legal sports betting, parking garages, as well
as a doubled gas tax, increased tax on e-cigarettes, a new $1 per pack fee on
cigarettes, a progressive tax on gambling proceeds – and that’s at the state
level alone.
Politicians use sin taxes to generate quick tax revenue while looking to curb
behavior advocates deem undesirable. But those objectives are at odds with each
other: If a sin tax successfully discourages residents from purchasing the item
it’s been applied to, tax revenues from those products and services are expected
to decline.
Meanwhile, researchers at the Urban Institute and Brookings Institution’s Tax
Policy Center found that, despite Illinois’ statewide alcohol tax hikes in 1999
and 2009, the increases had no significant impact on drunk driving fatalities.
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Sin taxes are also some of the least reliable
revenue sources. Tax Foundation research from 2017 showed
inflation-adjusted net collections from cigarette taxes demonstrate
a pattern of brief revenue spikes immediately after an increase,
followed by significant long-term dips. Tobacco use has steadily and
significantly declined since the 1960s, so cigarette sin taxes are
extremely unreliable as a revenue source. Data from the Illinois
Department of Revenue shows the Prairie State’s 2012 cigarette tax
hike fell more than $120 million short of projections.
In another example, promises of new revenue fell
short after Illinois legalized video poker and slots in 2009 –
slapping it with a tax to help fund a $31 billion infrastructure
spending program. State lawmakers projected state revenues to reach
$1 billion by November 2013. In reality, the state brought in less
than $70 million by then. Five years later, total state revenues
were supposed to rise to $2.5 billion, but state coffers only saw
$1.4 billion by November 2018.
Excise taxes are also largely regressive. While well-to-do residents
may not need to tighten their belts to afford high excise taxes,
low-income consumers suffer most under them.
Plus, Illinois’ exorbitant alcohol and cigarette taxes will surely
move border-town residents this New Year’s to cross over to
neighboring states for friendlier prices. According to at least one
estimate, Illinois loses up to $30 million annually on cross-border
alcohol sales.
Soda taxes have proven the regressive nature of sin taxes, according
to the Tax Foundation – but that didn’t stop Cook County from
imposing its own highly unpopular soda tax, while exaggerating its
potential public health benefits. The tax was eventually repealed
following backlash.
Not only has taxing Illinoisans’ appetites failed to rescue the
state from its fiscal plunge, it’s also hurt those with the least.
This new year, Springfield lawmakers should look to real pension
reform instead of regressive tax hikes to fix the state’s financial
problems. Illinoisans should be left to fix their bad habits at
their own discretion.
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