The questions have been asked, in various forms, practically since Oklahoma statehood.
“What happened to the tobacco/liquor/horse racing/lottery/casino money?”
“Wasn’t the liquor/horse racing/lottery/casino money supposed to fix that?”
Beer was legalized in the 1930s to shore up state revenue hit hard by the Depression. Later came package liquor sales, liquor-by-the-drink, pari-mutuel horse wagering, tribal casino compacts, “modernized” liquor laws, and now higher cigarette taxes and, maybe, marijuana in some form another.
Sin taxes, as they’re called, are often a popular — or, at least, less unpopular — way to raise revenue. Don’t smoke, drink, bet the ponies or play the slots, and you don’t have to pay them. It’s a variation on the old political axiom, “Don’t tax you, don’t tax me, tax that fellow behind the tree.”
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The problem with sin taxes, though, is that they’re not reliable sources of revenue.
So says a study released Thursday by the Pew Charitable Trusts in association with the Rockefeller Institute of Government — and, indirectly, everyone who’s ever asked why sin taxes haven’t fixed state and local funding problems.
“They can produce short-term revenue boosts, but they can also cause long-term structural challenges for state budgets,” said Mary Murphy, the study’s project leader.
That’s because the market for sin — taxable sin, anyway — seems to be surprisingly limited.
Per capita cigarette consumption has fallen more than two-thirds since 1980, and gambling revenue flattens out over time, according to the Pew study. The only recent growth, it says, is in liquor and recreational marijuana, and Murphy said there’s skepticism about sustaining long-term trends.
The result is that sin taxes just don’t generate that much revenue. Nationally, states derive 2 percent to 3 percent of their budgets from sin taxes, though the range is quite broad — from 12 percent in Nevada to less than 1 percent in North Dakota and Wyoming.
Oklahoma derived a little less than 3 percent of its 2015 revenue from sin taxes, placing it 37th among the states and the District of Columbia. It’s reasonable to think those figures will rise because of an additional $1-per-pack cigarette tax and changes to state alcohol laws.
And some people are touting marijuana — medicinal and/or recreational — as a new source of income.
The Pew study, though, found that revenue from medicinal marijuana in states where its legal has been flat and not enough to make much of an impact on state budgets.
Revenue from recreational cannabis has been strong, the study says, but erratic. And, as with liquor and gambling, there are questions about the costs of increased use.
Oklahomans have shown interest in trying to reap more money from tribal casinos, including the possibility of sports betting, but Murphy said gambling is a “relatively fixed” market that depends more on “poaching” than an overall expansion in demand. New casinos take customers from old ones, which then have to come up with new amenities, new games and new attractions to win back the same base.
“Gambling tends to poach from existing (types of gambling) in a state or in neighboring states,” Murphy said.
“Sin taxes are a useful tool for supporting public health objectives and can be effective in raising revenue in the short term,” the report says, but concludes, “States should be especially cautious about pursuing emerging sin taxes where markets are volatile and forecasts rely on limited data. Given this uncertainty, and the trends in revenue from these sources, states should also be mindful of potential pitfalls in directing new sin tax revenue toward recurring expenditures.”
