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Should 'sin taxes' be raised in Minnesota?

Posted at 3:06 PM on August 23, 2010 by Bob Collins (20 Comments)
Filed under: Politics

Is it time to raise the tax on alcohol in Minnesota?

Independence Party gubernatorial candidate Tom Horner thinks so. He included an increase in per-drink alcohol taxes in his announcement of a sweeping budget plan today. His plan would increase alcohol by 10 cents a drink.

He also propose a $1.50 increase in per-pack cigarette taxes. That should gin up some opposition from people who say cigarette taxes hit the poor hardest. But what about alcohol taxes?

Yes, according to the Tax Incidence Study from the Minnesota Department of Revenue. The tax impact for alcohol taxes is highest for lower-income Minnesotans. In this chart (click for a bigger image), the "decile" is a population segment ordered by household income with the lowest on the left.

Horner also proposed a Racino. Here's the Tax Incidence Study breakdown of gambling taxes:

The chart for every tax in the state looks pretty much like these two. In fact, the Minnesota Budget Project a few years ago studied the tax system here and determined that only two taxes -- the estate tax and the individual income tax -- are the only two progressive taxes in the state. That raises the obvious question: Should taxes be raised if they most impact those least able to pay? Should it matter in cases of "sin taxes"?

Should taxes be raised in Minnesota, even if they are -- by definition - 'regressive'?customer surveys

Incidentally, in the first hour of MPR's Midday on Tuesday (11:06 a.m. CT) , DFL Sen. Tom Bakk and GOP Sen. Julianne Ortman will take questions about tax policy.

Comments (20)

A question: How much will a tax increase on things like this reduce the amount that people consume, therefore defeating the extra revenue that the tax was supposed to bring in?

To your question: I don't mind if most taxes are regressive as long as our progressive taxes are progressive enough to make up the difference, such that everyone is paying about the same share in total tax.

Posted by MR | August 23, 2010 3:24 PM

If they want to collect more money via alcohol sales, a good start would be to get rid of the stupid ban on Sunday sales. No tax raise to go on anyone lawmaker's voting record.

But to answer your question, given that the current total taxation rate is regressive, I'd prefer any new taxes to try to weight things towards a flat rate.

Posted by Bismuth | August 23, 2010 3:40 PM

Ahhh, a sin tax such as using my income tax, which is taken from me against my will under threat of imprisonment (a sin if I ever met one), and using it to promote smoking cessation (substitute with any other questionable govt program) - that is the first sin they should tax. Preventing me from practicing a profession of my choosing by creating "licensing boards" regardless of whether a potential employer or customer cares one whit about the "license" another sin I would like to see taxed. Locking people up because they traveled to our state to do jobs that nobody in our state is willing to do - a heinous sin that deserves a very healthy tax.

I guess I am saying that I don't know if I trust the moral judgment of those who spend their days under domes enough to endorse the concept.

Posted by matt | August 23, 2010 4:03 PM

Sure! As long as they are not MY sins :-)

Posted by John | August 23, 2010 4:24 PM

I think gas taxes should be considered a "sin" tax and raised. It's pretty clear to me that the current gas tax doesn't really pay for all the socialized costs of driving. Forget cap and trade, just make the price refelct the real costs via higher gas taxes.

I guess I am being inconsistent with my previous declaration about not raising MY sin taxes. I am a sinner.

Posted by John P. | August 23, 2010 4:34 PM

Taxes should never be used as a vehicle to create social change, because if it actually works as intended you eliminate the revenue source. Sin taxes are just a way for politicians to raise taxes in the most socially acceptable way possible. Let's raise taxes on "the other guy" or the ones that people feel are doing something socially unacceptable. So once people stop smoking after the tax makes it unaffordable, where does the income come from? Move on to the next sin? This goes back to the Question of the Day, "Do we have a spending problem or a revenue problem?" The answer is YES. Let's just call a spade a spade and tax equitably and transparently instead of all the smoke and mirrors.

Posted by CHS | August 23, 2010 5:01 PM

Taxes on cigarettes regressive? Possibly so, if the lower incomes smoke more. But in this case who cares?? Tobacco cost society incredibly on health issues. A progressive society would find a way to ban it, or make those who choose to use it responsible for their habit - in all ways.

Same with Alcohol. It is either a luxury, or a sin, or an addiction, depending on how you view it. But it is not a necessity, and it is a choice we make. So it can be taxed, and we can raise taxes on it.

How about taxes on clothes? Most states have it, but of course it is a necessity.

So at what point do we protect the lower income part of society, even when the choices made are those that cause increased pain to society - health issues, addiction issues, behavior issues, etc.

Posted by RStar | August 23, 2010 6:49 PM

Matt, I thought the smoking cessation was funded with tobacco settlement money.

Posted by Bob Collins | August 23, 2010 7:27 PM

The sin is that Minnesota gets no income taxes from tribal casinos and signed a Compact that assures they never will. If Minnesota's tribal casinos were in other states, they would be paying as much as $600 million per year. The only way for Minnesota to tax casino gambling is to allow competition that will pay taxes. The least intrusive (Vegas-like) is the racino which simply allows slots at a racetrack/card club that is already a regulated gambling operation. This is a no-brainer that would have happened years ago if it were not for the tens of millions given by the tribes in political contributions to the DFL.

Posted by Gibson Carothers | August 23, 2010 7:45 PM

"a good start would be to get rid of the stupid ban on Sunday sales.."

Tom is in favor of putting Wine in grocery stores. like beer and selling on Sunday. But the later will be harder to get.

Posted by Diane Goldman | August 23, 2010 10:14 PM

Bob,The Tabacco Setttlement money was used at the end of Pawlwnty's first term to balance the budget. There is no money there now. Sorry~

Posted by Diane Goldman | August 23, 2010 10:19 PM

Right. i know that. But I think the smoking cessation programs died with it. Is there still a taxpayer-funded smoking cessation program in Minn.?

Posted by Bob Collins | August 24, 2010 7:19 AM

http://www.health.state.mn.us/healthreform/ship/

SHIP is handing out grants to counties to fund smoking cessation. Recent activities is trying to gain support for banning smoking in public parks and at county fairs.

Posted by matt | August 24, 2010 8:00 AM

Bob, ClearWay Minnesota is a smoking cessation program funded directly by Minnesota's tobacco settlement (if these are "taypayer dollars or not is a matter of opinion, but the $ comes directly from the tobacco companies).

Matt is correct that some grant funds are avalable via the Statewide Health Improvement Program. (Full Disclosure: my organization, the American Lung Association in MN, is providing technical assistance to this program).

The best tobacco cessation program the state ever had, Target Market (again, one of ours) did go away when the settlement money was re-directed.

Posted by Bob Moffitt | August 24, 2010 8:56 AM

To follow up on Matt's comments on SHIP activiies, the county fair boards are going smokefee pretty much on their own. With cigarette litter and the risk of fire (all that straw and hay in the barns) it just makes sense, no?

As for the smokefree parks, they differ from other "smoking bans" in there is usually no fee/penalty -- the efforts are encouraging smoke-free parks, not demanding them.

ALAMN is also very much involved in helping people find smokefree housing -- especially in public housing units.

Posted by Bob Moffitt | August 24, 2010 9:02 AM

I am liking Horner less and less. Our budget problems need to be solved by everybody, not just the smokers, drinkers and gamblers. Much to my surprise, Dayton is looking more and more appealing.

Posted by bsimon | August 24, 2010 9:31 AM

Keep in mind, Dayton's tax increase would only affect marginal tax rates. That means the increase would only affect income earned above the limit. That means a couple earning a taxable income of $151k (most likely $175k-200k gross income) would only pay a few percentage points of additional tax on the $1k over the limit. That means the concern about a cop and nurse paying huge additional taxes is complete nonsense even if they are the lead nurse and police chief. Add to that, if the couple owned a sub-S class corporation, they wouldn't pay any income tax on money spent on their business providing jobs. That tax encourages them to hire MORE. If they move their business to South Dakota, they have to move to an unproductive economy that lacks necessary infrastructure and knowledge workers. TCF Bank only located there to charge interest rates illegal in MN without moving real jobs away. South Dakota is a mail drop, like the Caymans.

Posted by Colin | August 24, 2010 10:49 AM

Most sin tax polls are a reliable indicator of what the current evil du jour is from the bluenoses and an indicator of one's political values. Further, these evils are no longer conservative evils but liberal evils. IOW, we all know that drunkards are conservatives and cigarette smokers are downtrodden, dumb, and victims. I suspect this is because of the short-circuited thinking that goes with "more taxes=GOOD!" or "more taxes=POWER OVER YOU."

With this in mind, is it a surprise that more people supported the bluenose position on an MPR online poll?

Posted by jfh | August 26, 2010 5:21 AM

Governments gain revenues through taxes to pay for expenses, but people often forget the deadweight losses in an economy that are created when taxes are imposed. Government should stop deficit spending and export more goods out of the country. In order to export more goods, government should invest money in manufacturing businesses rather than spending the money on wars and compensating people through welfare programs. The point is to create jobs; not to compensate people who are seeking full-time jobs.

Posted by Micah Todd | November 15, 2010 12:30 PM

I forgot one little thing.

The same concepts that apply to the federal government can be applied to state governments. Bring jobs into Minnesota would lower unemployment and reduce the budget required for welfare programs. That money could otherwise be spent on education.

Posted by Micah Todd | November 15, 2010 12:38 PM