Faced with a $315 million budget shortfall, Cook County Board President Toni Preckwinkle has proposed serious changes to how county officials spend taxpayers’ money. She’s challenging the public employee union bosses to come to the negotiating table. She aims to utilize private sector contractors to keep costs low. These all are necessary and commendable steps. Less so are the tax increases she has proposed: hiking the vehicle tax, raising county taxes on beer, wine and liquor, and redefining certain tobacco products (like cigars and smokeless) so taxes could be levied on them.

Last Monday, the four Republican members of the county board signed off on increases and provided the necessary margin for passage in the finance committee. The package of fee and tax hikes will cost residents an astounding $51 million, even as taxpayers are still reeling from January’s state income tax hike.

Targeting politically incorrect products may seem easy, but that doesn’t make it right. When you buy a bottle of liquor in Chicago, you already pay eight taxes: a county sales tax of 1.25 percent, county excise tax of $2/gallon, city sales tax of 1.25 percent, city excise tax of $2.68/gallon, state excise tax of $8.55/gallon, state sales tax of 6.25 percent, federal excise tax of $13.50/proof gallon, and a transport tax of 1 percent. Add these all together and it turns out a whopping 58 percent of the average bottle cost goes to taxes and fees. One sip for Uncle Sam, one sip for you.

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As states around the country continue to face ongoing projected budget deficits, many elected officials are advocating consumption tax hikes in an effort to close budget holes (see Dayton, Mark and Democrats, Minnesota).  However, New Hampshire recently cut its cigarette tax in a move to increase revenue and now Michigan—the state generally regarded as having the worst economy in the country—may follow suit.

Senate Bill 517 would roll back the $2 per pack cigarette excise tax, among the highest in the nation, and reset it at $1 per pack.  It would be partnered with budget cuts including an option that would tighten up Medicaid restrictions, loosened by the previous Democratic administration.

As with New Hampshire, experts believe the move could enable Michigan to become more competitive vis a vis neighboring states with higher cigarette taxes, encouraging consumers to purchase their cigarettes within the state rather than elsewhere.  In addition, the move could reduce the attractiveness of smuggled cigarettes illegally sold without tax being levied.  Studies by the Mackinac Center for Public Policy have estimated that nearly 35 percent of all cigarettes consumed within the state were purchased outside its borders, in Indiana, Ohio and even Kentucky. The estimated tax-induced smuggling in Michigan, which increased steadily as the taxes on cigarettes also increased, was a hefty 16 percent, the fifth highest in the nation.

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New York Attorney General and Democratic gubernatorial candidate Andrew Cuomo is proving a canny politician the further he progresses in his career.  Thursday, the son of former Gov. Mario Cuomo trashed outgoing Gov. David Paterson’s budget plan, saying he opposes plans to tax soda and hike taxes on cigarettes, and favors cutting spending in order to close the state’s $9 billion budget gap.

According to the Syracuse Post-Standard, Cuomo also indicated Thursday that as Governor, he would bring down state spending by eradicating state agencies and cutting spending on education, health care and Medicare.

New York’s deficit is expected to reach as much as $15 billion next year, with many observers blaming Paterson’s big spending approach for the situation.

Republican candidate for Governor Rick Lazio has been bashing Cuomo for failing to detail how he would close the budget deficit, just as Paterson has been dancing around various proposals to deal with New York’s current budget crisis.

Just days ago, taxpayer groups and convenience store owners breathed a sigh of relief when Paterson backed off his plan to raise cigarettes by $1 per pack, following Republicans in the State Senate signaling that they would vote against any bill including tax increases.

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Across the country, states big and small are facing significant budget gaps.  In California, the worst case by far, candidates for state office are debating how to close a $19 billion budget deficit.  In Florida, meanwhile, another multi-billion dollar budget hole is on the cards, and looks set to grow with oil drilling off the Florida coast now off the table.  Still other states are facing similar situations, if on a less disastrous scale.  While many serving in statehouses nationwide will advocate for spending cuts, as opposed to tax increases, in some states, tax hikes are already being put on the table, with so-called “sin taxes” demonstrating renewed appeal.

Washington State recently increased taxes on beer and cigarettes in an effort to stop its own fiscal bleeding (though left-leaning figures in the state have also been arguing for a state income tax).

In Illinois, a proposal to increase cigarette taxes that went nowhere last year has now been resuscitated.

In Florida, where ongoing budget woes are anticipated, concern exists that legislators could jack up cigarette taxes again.  Last year, the State Senate—including its Republican members, led by Senate President Jeff Atwater and budget committee chief J.D. Alexander—unanimously voted to increase cigarette taxes by $1 a pack.  The House ultimately played ball, too, and Gov. Charlie Crist gave a thumbs up to the tax hike, which was expected to bring in anything from $700 million to $1 billion.

In New York, where cigarettes are already extensively taxed and can sell for as much as $9 per pack, further increases could be on the agenda, too.

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Isn’t it interesting how every time a state government is in fiscal trouble that the first thing they decide to do is to raise taxes on the sale of tobacco?  Somehow, legislators have it in their heads that the only people who might be upset by raising the cost of tobacco are smokers.  And, since smoking is bad for smokers, and smokers shouldn’t be smoking anyway, maybe making smokes more expensive will dissuade smokers from smoking.

Of course, this is government we’re talking about.  So it never works out they way they think it will, no matter who tries to tell them.  In fact, this plan to raise revenue from tobacco taxes doesn’t actually work at all.

See, governments don’t understand free markets.  If you raise the price of a certain good or service beyond a certain point, people who want the product badly enough will find a way to procure it more cheaply.  Remember Prohibition? Same thing.  To avoid paying the higher taxes, they will cross state lines, buy from an Indian reservation, buy over the internet, or even resort to black market purchasing.

And, if raising taxes does actually cut down the number of smokers, then the expected revenue from this tax increase will be less than expected…because there will be fewer smokers!

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