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SPRINGFIELD’S ‘BAD SANTAS’ CAN’T KICK SIN TAX HABIT

Illinois Policy Institute | Dylan Sharkey

Bad habits are tough to break, and Illinois lawmakers can’t ditch their habit of depending on sin taxes to raise revenue.

The beginning of a new year usually encourages people to kick bad habits, but that’s unlikely for Illinois lawmakers, who impose the highest tax burden in the country.

Excise taxes, or “sin” taxes, on goods and activities like alcohol, tobacco, gambling and marijuana are intended to encourage moderation, but they should be used in moderation.

What constitutes a sin is open to interpretation. Chicago considers streaming your favorite TV show or song a sin, slapping a 9% amusement tax on entertainment services such as Netflix, Hulu and Spotify.

Excise taxes are regressive, meaning low-income residents give up a higher percentage of what they earn compared to affluent residents.

The Tax Foundation found cigarette taxes hit low-income smokers at three times the rate of rich smokers.

Plus, Illinois’ high cigarette excise tax revenue is unreliable because tax hikes bring a short uptick in revenue before eventually falling off. A $1 increase in cigarette taxes negatively impacts revenue by over $28 million.

Advocates for sin taxes argue it generates revenue and incentivizes better behavior, like quitting smoking. But the two goals work against each other: if people quit smoking in droves, there’s less revenue from the tax.

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For recreational marijuana, Illinoisans pay the second-highest taxes in the nation behind Washington state. High taxes push consumers to illegal sellers. The Illinois Commission on Government Forecasting and Accountability lowered expectations for the cannabis tax fund by $8 million.

Sports betting is one of the newest sin taxes imposed on the state. Illinois just surpassed New Jersey as the second-biggest sports betting market in the nation.

Chicago’s newest sin will be opening a casino in the River West neighborhood. The revenue will exclusively go to police and fire pensions. In the best-case scenario, the casino will only pay for 9% of the city’s pension debt – far from a solution.

Instead of inventing new ways to tax Illinoisans, lawmakers should look to the other side of the budget: spending. Revenue shortages will always be an issue when spending increases at an irresponsible and unsustainable rate.

Illinois had $210.5 billion in debt at the end of fiscal year 2021, or $49,500 per taxpayer, the third-highest in the nation. The first step in quitting a bad habit is admitting you have a problem.

 

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