Report: Sin taxes aren’t reliable revenue streams

The Pew Charitable Trusts warns sin taxes aren’t a cure all.

SPRINGFIELD (Illinois News Network) – With more states, including Illinois, considering legalizing sports betting or recreational marijuana for a cash infusion, one group is warning such revenue streams are unreliable and may not be a solution for poor finances.

The Denver Post reported in 2017 The Centennial State produced nearly 500 tons of cannabis. Colorado state government reports that netted nearly $250 million in taxes, license and fee revenue in 2017.

Now translate the demographics to Illinois. Colorado’s population is 5.6 million. Illinois’ is 12.8 million, 2.3 times larger than Colorado. If you assume similar population behavior and a similar tax structure, Illinois could net $575 million from 1,150 tons of legal pot, if the state were to legalize, regulate and tax weed.

For those thinking pot taxes will save Illinois financially, Illinois’ backlog of bills as of Thursday was nearly $7.8 billion. That would mean Illinoisans would have to consume 15,600 tons of weed in one year to pay the old bills. That doesn’t even address Illinois’ $130 billion unfunded pension liability.

That’s just one of many different so-called sin taxes being implemented around the country and more are being floated, including here in Illinois.

In a new report this week titled “Are Sin Taxes Healthy for State Budgets? Taxes on vices are tempting but an unreliable source of revenue,” The Pew Charitable Trusts warns sin taxes aren’t a cure all.

Project director Mary Murphy said sin taxes can provide short-term revenue gains for states, but shouldn’t be looked at as a fix for reoccurring budget problems.

“Any of these new or existing sin taxes are unlikely to be a silver bullet for larger budget issues, certainly when attempting resolve some of the larger structural budget challenges that many states are facing,” she said.

Murphy said sin taxes are also inherently conflicted.

“On the one hand they’re often meant to deter individuals from engaging in harmful behavior but on the other hand states often hope to collect meaningful revenue from taxing the activity,” she said. “If the first objective is successful states will see declines in both the behavior and correspondingly the revenue collected.”

Nationwide, the research showed a major decline in the sales tax revenues from cigarettes since the early 1980s.

The Illinois Commission on Government Forecasting and Accountability reports cigarette taxes dropped by $9 million in June from the year before.

Following the U.S. Supreme Court’s ruling earlier this year giving states the green light to legalize sports betting, proponents of expanding gambling in Illinois went to the drawing board to craft updates to efforts to legalize sports betting in the Land of Lincoln. Ultimately those efforts were put on hold over the summer as lawmakers ran out of time in the Spring session.

Murphy said expanding gambling could backfire.

“For one, the potential revenue stream (from sports betting) is difficult to forecast and by definition there’s very limited data and two if sports betting does behave similarly to other types of gambling states could see short-lived gains followed by downward pressure on revenue as more and more states legalized,” Murphy said. “And finally the revenue streams will likely be small.”

Such behaviors are also typically from a fixed population, Murphy said, meaning it’s unlikely there will be new consumers entering such a marketplace. And while legalizing such behavior could boosts state coffers, Murphy said it could also increase costs in other areas of society.