Posted on 03/15/2005 7:59:01 AM PST by Southside_Chicago_Republican
Last year when Cook County and Chicago both raised taxes on cigarettes, anti-tax activists cried foul.
They argued that the new taxes would only drive smokers into the black market or onto the internet, thus depressing tax revenue. As it turns out, they were right!
The Governor’s 2006 budget admits as much when it acknowledges that “total revenue from the [statewide] cigarette tax is forecast to come in significantly below budget, due to the Cook County tax increase of $0.82 in April 2004 and the subsequent increase of the City of Chicago ’s cigarette tax.”
Unfortunately, the Governor fails to adhere to his own logic. Instead, his solution to the shortfall brought on by Cook County and Chicago ’s new taxes is more taxes!
We can expect then that the state’s tax increase will lead to further shortfalls, this time for Cook County and Chicago. Thus, it won’t take long for Cook County or Chicago to raise taxes again in order to make up the losses. On and on this little game will go and where its stops, one can only speculate.
It doesn’t just hurt smokers.
The perception that tobacco taxes only affect smokers feeds this downward spiral by giving the politicians cover. But the perception is false. High taxes on tobacco have two potential consequences. Smokers will quit or they will simply find other sources for tobacco. In both instances hardworking neighborhood merchants suffer and the result of their suffering is a loss of economic activity and tax revenue for the people of Illinois.
So who does this affect?
The Illinois Policy Institute uses the State Tax Analysis Mapping Program (STAMP) to determine the implications of proposed tax policy. Illinois-STAMP uses accurate and robust economic data and a few basic (tested) assumptions about human economic behavior to produce qualified but accurate impact analyses of state tax policy.
Simulations assessing the potential impact of Governor Blagojevich’s proposed $0.75 increase in the cigarette tax find that it could cost the state as many as 7,878 jobs in 2006. Over five years the job losses add up to nearly 50,000.
The biggest hit will be taken by the retail industry, which could lose 5,914 jobs in 2006. Yet, many other industries will lose jobs as an indirect effect of this tax, industries like hotels (227), business services (134), personal and repair services (152), and construction (210).
Moreover, as the cigarette tax is increased, sales tax revenue will dramatically decrease, making the budget overly reliant on tobacco.
In just the first year the state will lose $28 million in sales tax revenue. By 2010 that number will have climbed to nearly $36 million in lost sales tax revenue. This loss stems from the fact that smokers often buy other convenience items when they purchase their cigarettes like gas, milk, coffee … etc.
If smokers are driving to Indiana or Iowa to buy their cigarettes they’re probably buying some of these other items there as well. Over the next five years the state will lose $198 million in sales tax revenue from tobacco taxes. Think of just how much mom and pop stores all across the state stand to lose. It is apparent that once again the Governor is trying to avoid real budgets solutions, opting instead for a politically advantageous Band-Aid.
Tax policy and local governments.
While most cigarette taxes benefit the state or county (with the exception of Chicago ), most sales taxes benefit local cities and townships. The $198 million in lost sales tax revenue resulting from five years of Blagojevich’s tobacco tax will come almost exclusively from local governments.
This means that communities will have less to put toward education and vital municipal services and will likely have to raise local taxes in order to cover their respective commitments. So in the end it is property and sales taxpayers that will pay.
Too often the discussion of tax policy stops at who is directly affected by the proposed increase. The reality is that all taxes have indirect consequences that affect everyone. While the cigarette tax appears only to hurt smokers, it will in fact have significant consequences for merchants and local governments.
The end result will be pressure for higher sales and property taxes to make up for the losses. Quitting smoking may be an admirable aim, but driving honest businesses and local governments into financial ruin is an unacceptable method of achieving it.
I quit smoking two years ago, while in my ICU bed at Chicago's Northwestern Hospital, after a heart attack.
And I'm weaning myself off tobacco too. I've reached the age where people start falling apart, and almost everything else in my lifestyle is healthy( I'm having shredded wheat and green tea right now,) so tobacco doesn't make sense. It never really did, but even less so now. But I've noticed something interesting lately to the approach in increasing cigarette taxes. A few years ago, there was a lot of rhetoric about discouraging people from smoking, funding anti-smoking and stop-programs, etc. Now it's obviously just a cash cow for mismanaged governments and Blago is almost watering at the mouth when he talks about the revenue (he figures) an increase is going to bring in. I expect that a lot of what this article says is true, but I'm not in the business of running government so I don't know for sure. I do know that the differences in various taxes (cigarettes, gasoline, food) between Illinois/Chicago/Cook County and the bordering areas of Indiana has been disasterous for business in my neighborhood. There isn't a gas station in Illinois within 5 miles of my house, and I live in the City of Chicago. There's no major grocery store in the neighborhood. There's barely a convenience store. But it's booming over in Indiana.
The author claims the new tax will cut an estimated 227 jobs from the hotel industry. There are more hotels than that in Chicago. How can anyone show a connection between those jobs and the tax?
I wondered about that too. Although I definitely see the connection in certain types of retail.
In Scandinavia, they are hit hard paying 8 bucks for a pack of cigs. If you get lung cancer, you are at the back of the hospital que. They maintain you deserve it.
Sorry, while what you say is true, I've never been big on sin taxes. People who are overweight, eat garbage, don't exercise, take drugs, drink too much, have risky sex, etc., are all burdens on the healthcare system too. Maybe the reason tobacco is taxed so readily is that it's so much easier to nail a tax on that product (and the behavior associated with it) than it is on the others. Blagojevich inherited a badly managed state government from good ol' George Ryan, and Blago hasn't done much better himself. Even though he hasn't exactly said so, the increase in the cigarette tax is not to fund the healthcare system, but to help make up for a huge budget deficit. I don't see why that burden should fall more heavily on the "sinners" than on other residents, except that there is less political risk in raising the taxes on a despised minority than it is in raising taxes for everyone.
I am a none smoker, but I like what you say about the false sanctimony of "sin tax".
Let us remember that no one can singlehandedly denounce the gov liberal fraud, all of us can share in our sins so as to fulfill what Christ meant by carrying other people's sins, and what kind of unequal treatment under the law various sin taxes can be used selectively on people.
We are all growing after all and need not be moralized by none smokers who use other habits more destructively simply because those are not on the radar screen... just take the high rate of diabetes complications due to eating sweets all the time in this country, and we will find that smoking would be a lesser evil there.
Hope they don't need to pay cash on the tollways...
Now, you don't want to get me started on that too.....:-(
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