States Profiting the Most From Sin
Detailed Findings and Methodology:
In an interview with 24/7 Wall St., Morgan Scarboro, a policy analyst with tax policy research organization, Tax Foundation, discussed the reasons states levy sin taxes. If a state’s residents are reporting high rates of unhealthy behaviors, the answer to the problem for some policy makers is, “we can tax it to discourage consumption,” Scarboro explained. In one recent example, New York City Mayor Bill De Blasio proposed a city-wide per-pack cigarette tax increase in an effort to dramatically reduce smoking rates in the coming years.
Educating people of the harms of tobacco with youth programs and public service announcements can certainly help lower smoking rates. However, raising the price of cigarettes with taxes has been shown to be among the most effective ways of lowering the smoking rate. Of the 10 states with the highest cigarette taxes, nine have a lower smoking rate than the U.S. rate.
States also use sin taxes to help meet budget shortfalls. The additional revenue can be used to fund education and cover the health care costs that arise from unhealthy behaviors across the population. However, Scarboro explained the two justifications for imposing sin taxes — reducing behavior and raising more revenue — demonstrate how these taxes are often unsustainable tax policies, as reducing consumption would eventually reduce revenue.
While raising the prices on these goods can deter consumption, excessively high excise taxes can make items prohibitively expensive and turn consumers to neighboring states or the black market. According to a 2017 Tax Foundation study, most cigarettes consumed in New York — the state with the highest cigarette tax — are smuggled in.
Other states already are, or soon will be, drawing revenue from marijuana sales. Marijuana legalization is still in its infancy in the eight states that have legalized recreational use. Colorado brought in $5.3 million in recreational marijuana license and application fees in 2016 and another $19.4 million in retail sales taxes. Collections from recreational marijuana sales would add a negligible amount to the 1.4% of Colorado’s revenue that comes from sin taxes — one of the smallest shares of any state.
To identify the states profiting the most from sin, 24/7 Wall St. reviewed state tobacco taxes, alcohol taxes, casino taxes, as well as proceeds from state-controlled liquor stores and state lotteries. Tobacco, alcohol, liquor store, and lottery income came from the Census Bureau’s State Government Finances report. Casino taxes came from the American Gaming Association’s “State of the States” 2016 report. All other figures are for fiscal year 2015, the most recent year for which consistent data is available for all income types. 24/7 Wall St. also reviewed excise tax rates as of January 1, 2017 from the Tax Foundation. We also reviewed alcohol consumption data and adult smoking rates from the Centers for Disease Control and Prevention.