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Lifestyle Taxes Go Up in Smoke

When will politicians learn that raising "sin taxes" brings in less revenue than expected?

by
Jazz Shaw

Bio

November 11, 2011 - 12:00 am
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Back in the bad old days, we used to call them sin taxes. (Not to be confused with syntaxes for our more advanced readers.) You know the ones: when the government needs to raise some fast cash but can’t risk angering the unwashed masses in their entirety, they jack up fees on nasty habits such as smoking and drinking. Apparently they are now being rebranded as “lifestyle taxes.”

Don’t you feel better already?

The governor of Maryland, one Martin O’Malley, finds his state coffers in the all too common and predictable state of being essentially empty. Like any experienced politician, he’s falling back on the same old playbook described above. In July he jammed a 50% increase in the state’s liquor tax down the collective throats of those evil imbibers of spirits. Not satisfied with the hoped for $88M in revenue, Maryland will now consider a one dollar per pack tax increase on smokers.

It’s probably rather rude of me to point out that the vast majority of these fees will be paid for by the 99%, to borrow the parlance of the recent campers in the Wall Street district. But let us not cloud the issue with facts. We may, however, note that the article linked above mentions Governor O’Malley’s last attempt at enhancing revenue in the form of a 2008 millionaire’s tax on the top 1%. This resulted — and honestly, who could possibly have predicted it — in roughly one third of Maryland’s millionaires fleeing the state and filing no tax return at all the following year.

So how will the sin tax approach work out for him? Prognostication is a dangerous occupation at the best of times, but we do have a few examples to draw upon.

In 2006, Cook County, Illinois, conducted a similar experiment, imposing a two dollar per pack tax on smokes. Amazingly — and honestly, who could have predicted this either — their revenues from the tobacco tax plummeted from $200M in 2006 to $126M in 2010. The more optimistic among you might speculate that this cash flow disaster was the result of a healthier public eschewing their puffing habits and heading out to the local parks to jog and munch on granola bars. But while some number of people likely did kick the habit, local officials admitted that the vast majority of the net loss came from people avoiding the law and patronizing local shops who took their chances selling bootleg goods sans the local tax stamp.

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