KGOU

New Study Warns Against Using “Sin Taxes” To Solve Budget Problems

Jul 27, 2018

Oklahoma’s tax on cigarette packs doubled at the beginning of July as part of the revenue package passed in March to fund teacher pay raises. But a new study from The Pew Charitable Trusts warns against relying on so-called “sin taxes” for ongoing state expenditures, like education.  

 


Mary Murphy led Pew’s 50-state study of sin taxes, which include taxes on cigarettes, alcohol and gambling. She says these taxes have two contradictory goals.

“All of these so-called sin taxes have this inherent tension,” Murphy said. “If one is successful in the first endeavor of seeing reductions in the given behavior, then the second objective will not be met presumably— we won’t see increases in revenue collections.”

The revenue generated from taxes on cigarettes tracks closely with smoking rates because the tax is levied by the pack, not the price of the good.

Oklahoma’s smoking rate is already on the decline— it fell to a historic low of 19.6 percent in 2016 according to the Centers for Disease Control and Prevention. According to Pew’s report, that’s in line with the rest of the nation, which has seen a decrease in smoking rates since the 1980s. Furthermore, the study, which examined revenue  trends from 2008 through 2016, showed that even states which increased cigarette tax rates recorded declining revenue.

Though the cigarette tax made up less than 5 percent of Oklahoma’s revenue in 2017, Murphy’s research suggests lawmakers may have to switch to taxes that are more reliable but less politically feasible to fill future budget shortfalls.

“State lawmakers should be mindful of some of the budget challenges that could be associated with these tax hikes over the long term,” Murphy said. “Is the state employing strategies that will not just help get to a balanced budget today but also planning for structural balance over the long term?”