States Collect Big on Americans' Sins

States Collect Big on Americans' Sins

Mike Memoli

The key factors in the national economic slump have hit the state of Nevada particularly hard, so one lawmaker had an unusual idea to generate new revenues: tax the sex acts performed at brothels.

"I don't know why people won't recognize that we have a legal industry," state Sen. Bob Coffin, who introduced the legislation, told the Associated Press. "I'm willing to go in and do the dirty work if no one else will."

The proposal, which died in committee last week, is just one example of how struggling state and local governments are trying to turn citizens' vices into much-needed new moneys to plug their budget gaps in tough economic times.

According to the National Conference of State Legislatures, this year 12 states debated proposals to raise or impose new taxes on alcohol, while even more looked to taxes on tobacco products as a quick revenue enhancement.

This was even true in the Deep South, where tobacco taxes have been the lowest in the country. In Mississippi, whose governor once lobbied on behalf of "Big Tobacco," the state legislature is currently debating a compromise on just how much to the cigarette tax. In neighboring Arkansas, Gov. Mike Beebe (D) signed into law a 56-cents per pack increase in the cigarette tax, in addition to new taxes on other tobacco products. Along Tobacco Road, Gov. Bev Perdue proposed a $1 increase in North Carolina's cigarette tax.

These proposals are not just being considered at the state level. The expansion of the State Children's Health Insurance Program, signed by President Obama in February, is funded by a 61-cent increase in tobacco taxes.

But the most frequent answer for state governments was to consider new or expanded gambling, with no fewer than 17 states debating proposals for new statewide or local casinos, slot machines or lotteries. That does not include other initiatives floated by local governments across the country.

The state of Delaware, which already has casino gambling in its capital of Dover, passed a controversial measure this year that would have the First State join gambling mecca of Nevada as well as Montana in allowing wagers on sporting events. Its new governor, Democrat Jack Markell, explained his proposal in an interview last week with Real Clear Sports.

"In my mind this is a comparative advantage," he said. "It's a tool that's available to Delaware. It's not available to any other state east of the Mississippi. My job is to do what's in the best interest of Delaware taxpayers, and I believe that by offering this competitor advantage we can generate additional revenue."

There are a number of arguments made against these so-called sin taxes. Critics of the federal tobacco tax increase to fund children's healthcare, for instance, argued that it is an unstable source of revenue, since cigarette consumption is expected to decrease as a result of the higher cost. The Associated Press reported that on April 1, the day the increase took effect, smokers were "flooding the lines" of stop-smoking hot lines across the country. Michigan had to cancel its anti-smoking hotline when it ran out of money; it had provided callers with free nicotine patches, gum or lozenges.

A more common argument against sin taxes is that they tend to disproportionately impact poorer citizens who are less able to absorb the impact of extra taxes. According to the Heritage Foundation, half of smokers are in families earning less than 200 percent of the federal poverty. As the Obama administration was highlighting a middle class tax cut, press secretary Robert Gibbs was asked if some lower-income citizens are not bearing a heavier burden in the end because of these increased tobacco fees.

"People make a decision to smoke," Gibbs argued, comparing it to taxes on plane fares. "Those people also got a tax cut."

Thomas Grey, spokesperson for StopPredatoryGambling.org, said that vice taxes are particularly shortsighted for governments to pursue, because it erodes its ability to enact more stable revenue sources by giving taxpayers the idea that such gimmicks are successful. It's an inefficient revenue source as well. With sales taxes, states pocket 99 percent of the revenue. But in the case of lotteries or gambling, they get no more than 34 percent of dollars spent by citizens, Grey said.

"It's a collapse of leadership in public policy," said Grey. "When government has to prey on the vices of its own citizens to function, it no longer protects and serves, it exploits."

In Pictures: Top 10 States That Pay the Most for Their Sins