It’s no secret that Illinois
is in a deep financial crisis. While federal assistance is likely on
the way, we need long-term, sustainable revenue streams to keep
government functioning during this “perfect storm of fiscal problems.”
The elephant in the room is the state’s constitutionally-mandated flat income tax, which dramatically limits the amount of revenue available and disproportionately affects those at the bottom of the economic ladder. Replacing this system with a progressive structure would dramatically alter Illinois’ fiscal situation. But while two-thirds of the state supports such reform, it’s going to take a serious push from a dedicated coalition of lawmakers to make it happen.
We hope to see such an effort emerge. In the meantime, we’re presented with a slew of less-than-perfect alternatives.
There’s gaming, which is regressive and an unreliable revenue generator currently falling out of favor with state governments nationwide. There’s the gas tax, which hits low-income consumers hard as well, but also disincentivizes driving and is more recession-proof than casinos. Then there’s the cigarette tax, which the Tribune’s Judith Graham reports is back on the table:
The push is on again to raise statewide cigarette taxes in Illinois by $1 a pack.
The American Lung Association and the American Heart Association are discussing the issue with lawmakers and Sen. Jeff Schoenberg (D-Evanston) plans to sponsor a bill.
A similar proposal passed the Senate in 2007 but died in the House after strong opposition from retail merchants, convenience store operators and gas station owners.
Like the other options, hiking the cost of cigarettes will take a larger chunk of income from working and middle-class smokers than the wealthy. But the indirect benefits are hard to ignore. While advocates estimate that doubling the tax would bring in an extra $320 million a year -- Illinois already collects $600 million a year from cigarettes and tobacco products -- the state would also save about $8 million annually in health care costs, thanks to an estimated 72,000 adults who would give up smoking if the increase was enacted.
Matt Yglesias explored the value of vice taxes last month:
[W]hile tax increases to fund useful services are things worth doing, it is worth considering the economic impact of taxes. Taxing the work people do can have a net beneficial impact on the economy if the tax revenue is spent on something adequately useful. But all else being equal, it does create a drag on the economy. Taxing cigarettes and soda and so forth, by contrast, mostly pushes people toward better healthy outcomes and therefore does something to boost quality of life and economic growth. And on top of that, it creates revenue that can be used for useful things. You wouldn’t want to try to fund the public sector entirely through vice taxes lest you wind up with black markets, perverse incentives, and a highly regressive code. But levied at a moderate rate, vice taxes can raise a lot of funds while having a modest-but-real positive impact on lifestyle choices and health outcomes. It’s something we ought to rely more on.
While it won’t solve all of the state’s woes, Schoenberg’s plan is another one worth watching.
Image used under a Creative Commons license by Flickr user Dr. Jaus.
Comments
Anonymous (not verified) on Tue, 01/13/2009 - 17:10
I think this is getting ridiculous!! Why is the state not looking at other areas to tax that would effect everyone, not just a select few: alcohol, sales tax, licenses, etc. I think it would only be fair that everyone would contribute not just some. I know people who smoke and this doesn’t deter them to stop they just find other states to purchase them at, as they do now.. just doesn’t make sense. I would prefer a gas tax increase, that way everyone is contributing, no matter what income class you are in..
smoker (not verified) on Wed, 01/14/2009 - 09:33
I fail to see how this saves health care costs. At some point I'll be old and need medical care or a place to sit and drool. Enough people might quit or reduce smoking or go out of state to render this proposed tax useless as a source of revenue. Lawmakers need to find ways for the state to live on a budget like its citizens do, before they implement more taxes to pick our pockets.
TaxMeMore (not verified) on Wed, 01/14/2009 - 20:59
""...we need long-term, sustainable revenue streams..."
History shows punitively high cigarette taxes are not sustainable, or reliable long term. When Chicago/Cook hiked cigarette taxes last time, state revenue declined $120 million within two years and total state cigarette tax revenue was only $640 million as recent as 2006, so a $320 million increase in that is 50% and would be beyond a miracle. And what happens when they budget and spend that extra $320 million but they only see $80 million extra the first tear, $40 million the 2nd, and then back to same revenues they were getting before the tax increase in year 3? Budget deficits. Exactly like they have now because they've been doing this same thing (overestimating revenue and underestimating costs) over and over and we need smarter reporters like you to question their bold revenue predictions.
In FY 2004, the state of Illinois collected $760 million in cigarette and tobacco taxes. In FY 2006, after Cook County and Chicago cigarette taxes increased, the state only collected $640 million, a reduction of $120 million the state of Illinois had to make up from taxes on people that don’t use tobacco products.
State cigarette tax revenues are steadily declining. Through the first six months of FY 2007 state cigarette tax revenues are down $4.3 million from the same time period in FY 2006.
Alongside cigarette tax revenues, cigarette sales across the state are declining. In 2006, 57.5 million fewer packs of cigarettes were sold in Cook County than the previous year.
Chicago has the highest total cigarette tax in the US, followed by Evanston, Cicero, and New York City. Then the rest of Cook County comes in tied at 5th.
Piling onto the highest cigarette tax in the United States is NOT going to bring in $320 million per year in additional revenue. All it will do is hurt poor people and minorities the hardest and lower the quality of living for thousands of families and children in Illinois. Vice taxes hurt the poor and perpetuate poverty more than any other consumption tax.
Craig H. (not verified) on Sat, 01/24/2009 - 03:39
"The elephant in the room is the state’s constitutionally-mandated flat income tax, which dramatically limits the amount of revenue available and disproportionately affects those at the bottom of the economic ladder."
What a complete load of crap!
Make $10,000, pay $333 in taxes, for 3%.
Make $100,000, pay $3,333 in taxes, for 3%.
Make $1,000,000, pay $33,333 in taxes, for 3%.
Looks proportionate to me!
Raising income taxes in Illinois will chase Illinois citizens to neighboring states, or will cause them to move out, creating a higher tax burden on everyone else.
Let's try to control our spending FIRST, shall we? Oh wait, I forget -- progress means "spend spend spend spend spend".
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