Lawmakers are addicted to vices just as much as the next guy. When state legislatures have a thirst for extra revenue, taxes on tobacco, alcohol, and gambling often quench their monetary needs, at least until the next fix is needed. Sin taxes are more politically friendly than other forms of taxes, but they still vary significantly across the nation.
States collectively raked in approximately $32.5 billion in sin taxes during fiscal year 2014, according to GOVERNING and data from the U.S. Census Bureau. Tobacco products were the clear winners, accounting for $16.9 billion of the total, followed by alcohol and gambling at a distant $6.2 billion and $5.6 billion, respectively. Yet sin taxes — and more specifically cigarette taxes — are not a long-term budget solution.
The percentage of Americans who smoke continues to decline and currently sits at an all-time low. Even though the population is increasing, the number of smokers declined by about three million over the past decade. This leads to even more cigarette taxes to make up for lost revenue, along with perpetual state budget woes. Smoking then becomes even more unappealing and creates a tax-them-until-it-hurts cycle. In fact, states enacted a total of 111 tax increases on tobacco products from fiscal years 2000 through 2015. Alcohol only received 23 tax hikes over the same period.
“A growing number of states are also, like Louisiana, weighing taxes on electronic cigarettes and vapor products. But only a few states have passed laws dealing with them so far, with most proposals levying taxes at the wholesale level where they are easier to administer,” notes Mike Maciag, a data editor for GOVERNING. “Some of the lowest cigarette tax rates are found, not surprisingly, in major tobacco-growing states. Georgia, Kentucky, North Carolina, and Virginia all impose taxes of no more than 60 cents on cigarette packs, well below the national average of $1.58. In seven states, the rate exceeds $3 per pack.”
Sin taxes accounted for only 3.8% of total tax revenue collected in fiscal year 2014. However, this percentage more than doubles for the states relying the most on sin taxes. Let’s take a look at the seven states most dependent on taxing tobacco, alcohol, and gambling for filling state coffers.
Sin taxes as percentage of revenue: 8%
Sin taxes as percentage of revenue: 9%
Sin taxes as percentage of revenue: 9.4%
4. New Hampshire
Sin taxes as percentage of revenue: 9.9%
3. West Virginia
Sin taxes as percentage of revenue: 11.5%
Sin taxes as percentage of revenue: 14.8%
1. Rhode Island
Sin taxes as percentage of revenue: 15.9%