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.