NCPA - National Center for Policy Analysis


July 2, 2010

As we enter the third fiscal year of recession-crunched budgets, states continue to seek greater revenue from "sin taxes."  This is an expensive trend for smokers, who saw 18 states raise tobacco taxes in 2009 alone.  But other "sinners" are often coming out ahead as a result -- assuming it's a good thing that states are letting them "sin" more freely, says Josh Barro, a senior fellow at the Manhattan Institute. 

This is because states' goal of generating more revenue from sin taxes doesn't always just mean higher taxes -- it can mean legalizing once prohibited activities or relaxing restrictions on existing activities. Those who partake in previously disfavored sins (especially gambling and, in some parts of the country, drinking) get greater freedom as part of the government's quest to generate revenue. 

This is most readily seen in the gambling space, says Barro: 

  • In 1980, casino gambling was illegal almost everywhere in the United States, and only 13 states had established lotteries.
  • Today, every state except Utah and Hawaii has some form of legal gambling, usually with the government taking a large cut of the proceeds.
  • A large majority of Americans live within two hours' drive of a casino. 

Recent budget pressures have led to further gambling expansions, often driven by regional competition, says Barro: 

  • Pennsylvania, Ohio, West Virginia, Delaware and Maryland all significantly expanded casino gambling over the last three years
  • Delaware and Pennsylvania legalized table games in large part to draw customers away from Atlantic City. 

We also see sin liberalization beyond gambling.  Many states have relaxed "blue laws" that have restricted hours of alcohol sale over the last decade, in significant part to raise new revenue. 

Meanwhile, New York Governor David Paterson has been pushing his legislature to allow grocery store wine sales -- projected to generate $150 million in added state revenues the first year, mostly from license fees -- but the legislature has so far resisted. 

Source: Josh Barro, "Smokers Lose, but Other 'Sinners' Win," Real Clear Markets, June 29, 2010. 

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