Smokes and booze for the children

Geoffrey Lawrence

Keynesian economics has long appealed to politicians. The reason? It's a school of thought that teaches that governments can and should spend as much as they want on anything they want — including ditch-digging, the ultimate "shovel-ready" job — and that this will create jobs and stimulate the economy.  Indeed, Keynesianism encourages policymakers to ignore any and all restraints and spend with reckless abandon on whatever government programs might fulfill their desires.

Now, policymakers in Nevada think they have found a taxation scheme analogous to the Keynesian principle of spending — one that encourages a lack of restraint by taxpayers as they pursue their carnal desires.

In order to make up for a projected decline in state operating revenues that may force spending cuts to the education system, lawmakers are considering increasing the "sin" taxes. "Sin" taxes in Nevada impose extraordinarily high tax rates on the sales of alcohol and tobacco products.

AB277 and AB255 would more than double the current excise tax rates on cigarettes and alcohol. The cigarette tax rate would rise from 80 cents per pack of 20 to $1.80 — an increase of 125 percent. The excise tax on liquor would rise by 115 percent, while the tax on other alcoholic products such as beer would rise by 331 percent.

 

Projected 2009-2011 Revenues*

Percent Increase

New 2009-2011 Revenues

Total Tax Increase

Cigarette Tax

$203,166,000

125%

$457,123,500

$253,957,500

Liquor Tax

$79,219,000

115%

$170,320,850

$91,101,850

Total

$282,385,000

$627,444,350

$345, 059,350

*Non-dynamic calculation, based on current Economic Forum numbers.

Applying the cigarette tax increase and the lowest rate of increase for liquor taxes to the Economic Forum's projections of tax revenue for the 2009-11 biennium gives a conservative estimate of the size of the total tax increase. As the table above shows, the total "sin" tax increase from these two bills could be as high as $345 million. And, as a consequence, about $627 million or 6 percent of all general-fund revenues during the biennium could end up reliant on the "sinful" activities of Nevadans.

State lawmakers have increased the reliance of state finances on "sinning" before. In 2003, state lawmakers responded to economic downturn by increasing the cigarette tax by 150 percent and the liquor tax by 75 percent. This would be an additional increase of 125 percent and 115 percent, respectively, just six years later.

Revenues from the proposed tax increases would nominally be designated for healthcare expenses. However, those revenues, passing through the general fund, would likely displace existing sources of healthcare funding from the general fund — allowing more tax dollars to be allocated to the education system to avoid cuts there. Hence, while these tax increases are being billed as following a "user pays" principle, they would effectively be tax increases for education.

This would not be the first time that state lawmakers have made education and "sinning" interdependent. In 1998, Nevada and 45 other states reached a settlement agreement with the largest tobacco companies that would force the companies to pay the states because tobacco products had allegedly driven up the cost of state-run healthcare programs. (After socializing the cost of healthcare, the states were essentially complaining that the costs were socialized.  Individuals who did not have to bear the financial costs of their actions directly, it was argued, became less averse to smoking than they otherwise would have been, driving up state-run healthcare costs.) 

Immediately, lawmakers in Nevada linked education funding to the supply side of "sinning" by using the tobacco settlement money to fund the Millennium Scholarship program. The new round of sin tax increases would just build on a long-established tradition in Nevada that forges an alliance between children, chain smokers and problem drinkers.

By making the funding of state government programs ever more dependent on the consumption of cigarettes and alcohol, state lawmakers would presumably like Nevadans to fulfill their civic duty by engaging in these activities. Surely, if state finances are reliant on "sinful" behavior, the worst thing that could happen from the government's perspective would be for everyone to go straight. Instead, Nevadans must be encouraged to do their part by smoking and drinking "for the children." 

Who knows, perhaps "Come to Las Vegas and sin for the children" would even make for a better marketing campaign than "What happens here stays here." 

After all, who doesn't want to help the children?

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute.

Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.