The wages of sin (taxes) again

posted at 10:05 am on October 6, 2011 by Jazz Shaw

Ah, politicians and their sin taxes. It’s like kids with big bags of candy the day after Halloween… they just can’t help themselves. When they want to raise revenues but fear the wrath of the voters, the surest path to some quick cash has traditionally been taxing “bad things” which will raise the least objections from the populace. (Why they don’t simply outlaw these things if they are so “bad” is never explained.) But does it actually produce the desired effect of bringing more money into the government’s coffers?

This experiment has been running for some time now in Cook County, on the outskirts of Chicago. Intrepid county politicians decided to cash in on the sin tax craze back in 2006, going after smokers by tacking on a fee of ten cents per cigarette. (Or two dollars per pack.) This has had some predictable, if disappointing results.

In 2006, the county collected about $200 million in cigarette tax revenue, but that dropped to about $126 million last year.

“There’s probably some people who have given up smoking, but I don’t think that accounts for $74 million (less),” [Sheriff Tom] Dart said.

When you increase the tax burden sufficiently on anyone, some will abandon the activity, but for many others they will eventually find ways around it. In this case, both smokers and businesses have begun exploring the increasingly lucrative black market trade for smokes. So much so, in fact, that the county is now spending even more resources and money to chase down the scofflaws and pay out “snitch fees” for people to turn in their neighbors.

Chicago-area stores profiting from under-the-table cigarette sales may see that business plan go up in smoke.

That’s because Cook County is stepping up enforcement of its $2-a-pack cigarette tax, offering rewards of up to $1,000 to anyone whose information that a store is skirting the tobacco tax leads to arrests, county board President Toni Preckwinkle and Sheriff Tom Dart announced Friday.

[…]

After beefing up the investigative arm of the county revenue department and bringing sheriff’s officers in to assist in recent weeks, the county has hit some stores with more than $400,000 in fines for those selling cigarettes under the tax radar. In all of 2010, $1.6 million in fines were levied.

So let me get this straight. By implementing a sin tax to bring more money in, you’ve managed to not only slash the amount of revenue you’re collecting nearly in half, but the taxpayers also have to lay out thousands of additional dollars to pay a bounty for folks to turn in neighborhood stores and residents? Plus, as a bonus, you’re hammering the small businesses in the area far more than any huge corporate behemoths.

Genius. I would say, “only in Chicago,” but sadly this is going on all over the country.

UPDATE: Our friend Steve Eggleston points out in the comments that Wisconsin is pulling a similar maneuver, cracking down on “roll your own” shops. With the massive price increases on commercial brands, many smokers have taken to purchasing loose tobacco and rolling papers / machines to produce their own at less than half the cost. The government is now apparently going after them as well to make sure no smoker goes unfleeced.

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