April 21, 2004

I’ll tax the everlasting sin out of ya…

Tax hikes, Texas-style:
Gov. Rick Perry called the Legislature into special session Tuesday to change the way public education is financed in Texas. He wants to give billions of dollars in property tax reductions to the most affluent homeowners while making up part of the revenue loss through a vast expansion of legal gambling, increasing cigarette taxes by $1 a pack, raising taxes on alcoholic drinks and collecting a tax of at least $5 each time a patron enters a topless bar.
Ever since New York City irked me to the utmost by raising its cigarette tax a few years back, I’ve had no end of tiresome fun wailing on sin taxes. A quick recap of the best arguments against:
  • Like most sales taxes, it’s a regressive tax, hitting lower income folks the hardest.
  • The sin tax creates an unstable revenue base, since “naughty” expenses are the first to go during hard times.
  • The government now has considerable incentive to promote gambling, smoking, drinking, and strip bars.
  • If a sturdy enough black market develops, the government ends up losing revenue. Witness The Prohibition. Not to mention, of course, all the other problems associated with black markets.
  • Sellers take a hit in profits—through absorbing some of the tax and through unhealthy competition with the black market.
  • Granted, I wasn’t crying this hard when Democrat darling Jennifer Granholm decided to raise cigarette taxes in Michigan earlier this year. But Granholm’s plan aimed to increase state revenue. Perry’s plan, by contrast, is supposed to make up for a cut in property taxes on wealthy estates. All the while mumbling something about balancing the budget. Well good luck to you, Governor! Expect to lose a few billion in revenue…

    Alas, Perry’s ‘scheme’ may very well signal the start of a nationwide shift from asset taxes to highly regressive ‘sales and sin’ taxes. In all likelihood, the sales tax trend will start at the state level—with governors under increasing pressure to avoid much-needed tax increases—and from there become generally accepted practice.
    -- Brad Plumer 11:18 PM || ||