We know one thing pretty much for sure: Consumption rates would have gone down. (They did go down during Prohibition, sharply at first, then rebounding.) But what might have been the effect on the burgeoning menace of organized crime? Would bootlegging have been just as prevalent as it became under the Prohibition laws? Would there ever have been an Al Capone?
I don’t pretend to know the answer, if there is one. What I do know is that we are imposing ever-increasing taxes on most of the activities we generally place in the “sin” category — drinking, smoking, gambling and, most recently, the sale of legalized cannabis. Most of these taxes are levied at the state and local level.
Across New York state these days, it will cost you an average of $14.55 to buy a single pack of 20 cigarettes. In New York City, it can cost about $18. Maryland, Rhode Island and Connecticut are not far behind. In the 1950s, a pack cost about a quarter. My first reaction to those numbers is to ask why anyone in their right mind would pay $18 for a pack of cigarettes. But of course, that leaves out a single word: addiction.
Still, the decline in smoking in the United States over the last few generations is remarkable. In the 1950s, the percentage of adults who smoked was around 45 percent. Among males in some age categories, it was as high as 75 percent. If you happen to watch a movie from the ’50s, you will notice that just about everyone smokes — men, women, teenagers, everybody. Now the number is about 11 percent.
Of course, much of the decline comes from evidence that smoking is unhealthy. But taxation is a significant factor. Some studies have concluded that a 10 percent increase in the price of cigarettes lowers the demand for them by 4 percent.
WHETHER THAT’S TRUE OR NOT, the fact is that most states are taxing the hell out of the so-called sin activities. I know that they are doing this to raise tax revenue, not just to discourage the behavior. But the idea of discouraging sinful behavior is crucial to getting sin taxes approved just about anywhere in the country.
In any case, these taxes are being imposed at levels that would have been unthinkable not too long ago. And they are going up substantially. Indiana recently tripled its cigarette tax. Tobacco taxes went up at the start of the year in Minnesota, Hawaii and Maine. In many states, the state, local and federal taxes on a pack of cigarettes outweigh the cost of the product itself.
It’s not just tobacco. Illinois has imposed a sports-betting tax of up to 50 cents per online wager placed with the big gaming companies. The governor of Ohio has proposed doubling the state’s sports-betting tax to 40 percent. He hasn’t gotten it through yet, but it remains on the agenda. California taxes the sale of cannabis at 15 percent, with an increase likely in future years. All 50 states levy a tax on beer, although several have chosen not to impose a tax on wine. Tennessee has the highest state beer tax: $1.29 per gallon.
SO THERE’S A LOT OF MONEY INVOLVED HERE. But the whole business raises a lot of questions. How much do sin taxes contribute to a state’s overall budget? Who gets hurt when a pack of cigarettes costs $15? And how fair is it to impose this price on ordinary citizens seeking what they perceive as a respite from the burdens of daily life?
One paradox of sin taxes is that they are pursuing two goals at the same time, and that these goals can point in conflicting directions. In the case of smoking, states want to discourage the habit and make money doing so. But the fewer tobacco purchases residents make, the less money is going to come into the state’s treasury.
This is especially ironic in states where a portion of the sin tax revenue is earmarked for smoking cessation and public health programs. If smoking in the state drops below a certain level, there’s not enough money left to continue the programs. In other words, the better they are at fighting tobacco, the less they have available to keep fighting it. One way states deal with this problem is by moving sin tax revenue out of the public health bucket and into the general fund. But this nearly always faces a challenge.
Then there’s the question of how much even the most lucrative sin tax can contribute to a state’s revenue. Illinois took in about $3.5 billion from its sin taxes in the last fiscal year. But the state’s total budget came to $55 billion. So sin taxes in Illinois are more than a drop in the bucket, but they aren’t going to bail the state out of its fiscal trouble. It’s also dangerous for a state to depend on sin tax money to finance the things it needs to do. Sin tax revenue is volatile and based on a narrow spectrum of activity, and relying on it too much can cause serious fiscal problems down the road.
ALL OF THIS BRINGS UP THE UNDERLYING ISSUE OF FAIRNESS. There’s no question that sin taxes are regressive taxes: They impose more hardship on working-class sinners than on the affluent. Rich New Yorkers can shell out $18 for a pack of cigarettes, if they can’t help themselves from doing that. But blue-collar workers who smoke must either devote a significant share of their incomes to tobacco or else give up smoking altogether. I realize that a decline in tobacco use is a healthy thing, but it is imposing a significant lifestyle penalty on the poor, while allowing others to escape it.
That leaves gambling. I’m tempted to say it doesn’t fit in the sin category because an occasional bet on a race or game doesn’t hurt anyone, but then you can say an occasional drink or joint doesn’t hurt either, so maybe they do belong together.
In any case, states seem to have decided that gambling does belong in the sin category, at least for revenue purposes. Sports betting has been legal since the Supreme Court ruled in its favor in 2018, and most states have taken their cut from it. But the rates of taxation vary enormously, as they do with other sin categories. At the end of 2024, the state tax on sports gambling was 6.75 percent in Nevada, but 51 percent in New York, New Hampshire and Rhode Island. That’s on top of a small federal tax on gambling in states where it is legal. And in some states, there’s a city tax as well. Seattle collects a 10 percent tax on winnings from gambling at fundraising events — although, interestingly, not from bingo games or raffles.
There are as many definitions of sin as there are systems of morality. For governments in need of money, however, only one definition really sticks: A sin is an enjoyable personal activity that may harm the sinner in the long run but brings in revenue immediately. The Bible says the wages of sin are eternal damnation. For quite a few states in this country, however, the wages of sin are a few extra percentage points in in the next fiscal accounting.
Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.
