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The Power of Spending Addiction in Illinois
Illinois seems to have a default answer to all budget and spending decisions: Put it on the taxpayer’s tab. That is the only conclusion I can draw after reading that another local government in the Land of Lincoln wants to raise alcohol taxes rather than cut spending. Following on the heels of Cook County’s decision to massively increase taxes on alcohol, the Elgin City Council is pushing for a three percent hike. Astute readers of maps might note that portions of Elgin cross into Cook County so some lucky residents will get to pay both taxes!
The full proposal laid out earlier this week is to close the city’s budget deficit by raising the sales tax .5 percent to 1.25, impose a new leaf collection fee, and raise refuse fees in addition to the aforementioned alcohol tax. The City Council is pushing this scheme to avoid cutting government handouts to various non-profit associations. The sales tax is estimated to cost consumers $1.7 million in higher taxes per year, raising the alcohol tax will cost up to $1 million per year, and the city does not provide revenue estimates on the leaf or refuse fees.
As a matter of perspective, Elgin currently operates on a $268.7 million annual budget. The supposed impetus for these fee and tax increases is to close a $4.5 million deficit. The quick math shows that the deficit is roughly 1.5 percent of spending. Rather than continuing the Illinois tradition of nickel and diming every last cent from taxpayers the city could look to cut back just a little bit. For every dollar currently spent by departments, the deficit would be non-existent if they cut back to a measly $.98.
Furthermore, the use of sin taxes -- small, targeted excise taxes on goods such as cigarettes and alcohol -- are among the most politically expedient yet economically counterproductive policy prescriptions for revenue-hungry lawmakers. Officials at all levels of government find such taxes alluring because opposition tends to be weaker, since only a relatively small percentage of the population uses the good or service in question.
Notwithstanding any moral arguments for or against smoking, drinking, or gaming, Elgin should know the downsides of these taxes better than most. In fact, one of the drivers of the current deficit is an overreliance on the Grand Victoria Riverboat to sustain high local spending levels. Yet the City now wants to supplement the declining gaming revenues with an additional tax on alcohol. What needs to happen is for Elgin to go cold turkey on sin taxes.
As NTU has pointed out in the past, Elgin's experience is the logical progression of these taxes. Our study found that of the 35 tobacco tax hikes on the state level between 2004 and 2006, 22 were followed up with subsequent tax increases. Quoting directly from the City’s website;
However, Elgin’s primary street improvement funding source, the Grand Victoria Riverboat is becoming a less reliable revenue generator. To address this imbalance, the city’s proposed budget includes a half-cent increase in sales tax, taking it from .75% to 1.25%. Sales tax provides a way to diversify revenue streams without placing the burden solely on Elgin residents, as sales tax is paid by non-residents shopping in Elgin.
Arguments for exporting the local tax burdens aside, the City is demonstrating precisely what NTU has warned about time and again. Sin taxes, whether they be gaming, tobacco or alcohol, inevitably lead to higher taxes on everyone at some point. The root cause of the problem is an addiction to spending. Shifting the burden onto politically convenient targets does not cure the disease.
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