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  • Dan Connors

State-sponsored sin taxes- dirty money?


HowMuch.net, a financial literacy website

For all of the misery Covid-19 brought, it was a godsend to state governments, who found themselves awash in free federal pandemic money. Now that the money is drying up, states are looking at a much tougher budget reality. But rather than raise income taxes or cut services, (which would be unpopular), states are looking toward and old and more accepted fundraiser- sin taxes. Taxing sinful behavior such as smoking, drinking, and gambling has been around for centuries, but now people are taking a closer look at them.


Sin taxes have typically been a small portion of total revenues (5% or less), but things could be changing. The growing acceptance of both marijuana and gambling is raising the possibility of legalizing, promoting, and taxing both things in order to meet budget shortfalls. Is this a good idea? People are going to gamble and smoke weed anyway, so why not get some benefit out of it?


Missouri is currently looking at legalizing sports betting, (a $75 Billion market) after having legalized recreational pot (many billions in sales, much of it unreported). Illinois has legalized both things and is now looking at legalizing online gambling casinos, opening up a huge market of slot machines, poker tables, and roulette wheels from the comfort of your home. All of these are being touted as great income generators for state coffers, especially given the tight times that lay ahead.


As someone who rarely indulges in these "sin" industries, I'm tempted to say "sure- let the gamblers and smokers pay for our schools and bridges." But the entire concept bothers me for three key reasons:

- Sin taxes ultimately hurt the poor and vulnerable (and their families) more than the rest of us.

- States are essentially endorsing and encouraging bad behaviors, which for a minority that suffers from addictive personalities destroy their lives.

- As we've seen from state lotteries, the revenues from these taxes can be unreliable. A recent Pew Research study said that these sources are volatile and unpredictable, making them unreliable for essential state functions.


Legalizing and encouraging sports gambling could transform sports as we know it. There is already some cheating going on in both college and professional sports, but this will greatly add to the level of deception and trickery in what is supposed to be a clean and fair competition. Legalizing online casinos might only end up hurting the existing casino industry. The addictive nature of many of the casino games only serves to impoverish and isolate customers, who will have to overcome both a house advantage and a state tax before showing any profits. And while the marijuana ship has sailed, we still know way too little about the long-term effects of pot smoking on health to assess the risks involved.


What happens if we become too dependent on these types of taxes? Will we start to look for more things to legalize and monetize, like prostitution, public executions, or cockfighting? If we're going to tax bad behaviors, I'd be more likely to support things like "sin" taxes on plastic bottles, junk food, or carbon consumption, which would at least help make our environment healthier.


Sin taxes were designed to offset the public health consequences of the sinners. Gambling taxes pay for programs to help problem gamblers. Cigarette taxes pay for anti-smoking campaigns. But now we're expecting these taxes to pay for regular services, on the backs of the most compulsive among us. Here's an idea- how about raising revenues the old -fashioned way? With income and sales taxes. That way everybody has a stake in state government and services, and hopefully those with the most income and resources are willing and able to contribute their fair share.


Gallup polls routinely show large majorities in favor of asking the rich to pay more of the tax burden than they do currently, but public opinion is meaningless in the face of our corrupt campaign finance system. It's politically easier to promote sin taxes, which is where it looks like where we are headed. Sinners beware.


This article was published by the St. Louis Post-Dispatch.

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