In these days of state spending demands that far exceed anticipated revenue, new ways to generate more money are being explored. In many cases, states in recent years have turned to new or increased taxes on items whose excessive use can cause health and public-safety problems. In particular, tobacco and alcoholic products are being targeted.
Missouri voters rejected an increase in the state's tax on cigarettes and other tobacco products last year. In the meantime, legislators have authorized using funds from the national tobacco settlement to narrow the gap between spending plans and revenue.
Advocates of increasing so-called sin taxes tend to include among their arguments the need for more money to combat health problems caused by smoking or drinking as well as more money to educate the public about the dangers of smoking-related illnesses and the dangers of drunken drivers and alcoholism.
Invariably, however, other needs for sin-tax revenue are quickly determined once the money starts coming in. The Show Me State's tobacco settlement, for example, was intended to pay for the health-care needs of Missourians with tobacco-related illnesses and for programs to prevent youngsters from taking up the smoking habit. Now the state is using its share of the anticipated revenue from the national tobacco settlement to guarantee a bond issue to bail out budget deficits.
The biggest danger in this approach to fiscal management is that the anticipated revenue from the tobacco settlement may fizzle. One major tobacco company already has announced it may not make its planned April payment because of bonding requirements imposed by an Illinois judge.
If a way exists to halt these multibillion-dollar payments, you can bet the tobacco companies will find it. And if they are successful, states that have sold bonds, like Missouri, to prop up current spending will be left without the stream of cash they were counting on to make the huge principal and interest payments.
In addition to tobacco, states are looking at new or higher taxes on beer to bring in more money. At least 23 states have considered raising beer taxes in the past two years, but only a handful of proposals have been adopted. There are some half-hearted efforts in the Missouri Legislature to increase taxes on beer sales, but they aren't going anywhere this year, even during a session where new cash is a hot commodity.
In addition to alcohol and tobacco, another cash cow for state governments is gambling. A large segment of Missouri's population can recall an era when government-sanctioned gambling was morally unacceptable. Now bingo, the lottery and casinos are a major source of state revenue. Billboards praise the contributions of gambling revenue to government spending. And churches and other organizations pay their bills with proceeds from bingo and raffles.
Attempts to boost sin taxes show how desperate states are to maintain spending rather than finding prudent ways to decrease the burden on taxpayers, smokers, drinkers and gamblers.