States eye ‘sin’ taxation as salvation for budgets

It could cost a good deal more to be bad this year.

Cash-strapped state lawmakers across the country are looking at raising “sin” taxes on everything from traditional vices, like smoking cigarettes and imbibing alcohol, to more recently vilified habits like drinking sugary sodas and hitting the tanning salon.

• In Mississippi, state Rep. John Mayo, citing the state’s place at the top of national obesity ratings, is sponsoring a bill that would add about 25 cents in new taxes to a can of soda.

• In New York, state Assemblyman Felix Ortiz, Brooklyn Democrat, wants a new “fat tax,” a surcharge on the purchase of sweets and snacks.

• In Maryland, dozens of state lawmakers are getting behind a plan to raise $200 million in revenue with new taxes on beer and wine, but in the face of strong opposition from the state’s business community.

Other states and jurisdictions are looking at taxing the use of plastic shopping bags, raising fees for casinos — even in gambling meccas such as Nevada — and taxing tanning salons. In California, proponents of easing restrictions on marijuana cited the tax revenue legal pot could bring in. Some states have even considered new taxes on buyers of pornography and patrons of strip clubs.

Analysts say lawmakers are motivated far less by a desire to reduce sinning than by a need to increase revenue.

It’s all driven by the massive budget shortfalls facing state and local lawmakers, said Justin Wilson, senior research analyst at the Center for Consumer Freedom, a Washington-based nonprofit that has lobbied against what economists call “Pigouvian taxes” — levies designed to change behavior for the betterment of society. (The name honors 19th-century English economist Arthur Pigou, one of the first to analyze the idea of economic “externalities.”)

“People shouldn’t be fooled into thinking these are about anything except raising money. This is a result of the combination of revenue-hungry legislators and regulation-hungry public health advocates,” Mr. Wilson said.

Politicians say it’s not that simple.

In Idaho, the Republican chairman of the legislative committee that will consider a cigarette-tax increase this year told IdahoReporter.com recently that his primary concern was the health of state residents.

But Rep. Dennis Lake also conceded that fellow Idaho lawmakers — desperate to avoid cuts to pet programs or agencies — may be more inclined to back a cigarette-tax increase this year than in years past.

In 2009, President Obama floated the idea of increasing federal taxes on soft drinks to help pay for his health care overhaul plan.

“It’s an idea that we should be exploring,” the president told Men’s Health magazine at the time. “There’s no doubt that our kids drink way too much. … And every study that’s been done about obesity shows that there is as high a correlation between increased soda consumption and obesity as just about anything else.”

The proposal never got anywhere on Capitol Hill, but Mr. Obama’s health law approved last year does include new taxes for tanning salons and their patrons.

And the idea of taxing sodas has gained traction in state legislatures and city halls. Philadelphia Mayor Michael Nutter in particular has loudly — though, thus far, unsuccessfully — championed a new tax on soft drinks in the city.

Washington and Baltimore both raised taxes on sodas last year, though Baltimore may end up paying a political and economic price: PepsiCo Inc. announced last week it is closing part of its Baltimore Hampden plant, eliminating more than 70 jobs. Company officials said the beverage tax played a role in the decision, although Pepsi had already been looking to cut local costs.

One day after the announcement, Maryland Senate President Thomas V. Mike Miller Jr. said a drive in Annapolis to raise $200 million through new taxes on alcohol in the state was “insanity personified.”

Mr. Miller, Calvert Democrat, said he could support a modest increase in taxes on beer and wine, but he said some of the proposals making the rounds go too far.

Versions of that debate are going on across the country: How much of a tax increase is too much?

Cigarettes and tobacco, especially, are being targeted, even in historically tobacco-friendly states in the South.

In Georgia, where lawmakers are looking to close a budget gap of almost $2 billion, a legislative advisory committee this month proposed almost doubling the excise tax on a pack of cigarettes.

South Carolina, which once boasted the country’s lowest cigarette taxes — 7 cents a pack — overrode a veto from Gov. Mark Sanford last summer to bump that rate by half a dollar, to 57 cents a pack.

That increase left Missouri with the nation’s lowest rate, 17 cents a pack — a distinction that rankles state lawmakers like Rep. Mary Still, Columbia Democrat.

“If this is a race to the bottom, we win,” she wrote in a recent editorial calling for a dollar-a-pack tax increase.

New York, which already had the highest cigarette taxes in the country, approved an increase of $1.60 in June, bringing the state’s levy to $4.35 a pack. With the state and local taxes, New York City smokers pay almost $11 for a pack to satisfy their nicotine fix.

The increase helped the state close a $9 billion budget gap, but the state faces an even larger shortfall this year. New Democratic Gov. Andrew M. Cuomo weighed in Thursday on the cigarette tax, warning the state’s Indian tribes, which have challenged the state’s authority to collect the new taxes on reservations, that they will not be spared.

That, warned one Western New York Indian leader said, would amount to “an act of war.”

Other opponents don’t go quite so far, but critics like Mr. Wilson contend that Americans are in danger of losing important freedoms in the rush to raise cash and punish “bad behavior.”

“Having a soda or enjoying a candy bar, most Americans don’t see these as ’sins.’ They see these as simple pleasures,” the analyst said. Calling the taxes “regressive,” he added: “The practical effect is we just make the lives of people - people who aren’t so well off in the first place - just a little less enjoyable.”