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Tuesday, July 6, 2010

Tuesday Tussle: Part 1, Sin Taxes Are the Best Solution to the Illinois Budget Crisis

Posted By on Tue, Jul 6, 2010 at 2:00 PM

click to enlarge A two percent tax on apples would have kept the Garden of Eden solvent. - IMAGE SOURCE
  • Image source
  • A two percent tax on apples would have kept the Garden of Eden solvent.
Illinois has essentially stopped paying its bills.

According to the New York Times, the state has $62.4 billion in pension liabilities and "owes more than $5 billion for schools, rehabilitation centers, child care and the state university."

There's a deficit of at least $12 billion and the General Assembly left the capitol earlier this month without a plan to pay for about 26 percent of the items in the budget.

The Land of Lincoln is on the verge of bankruptcy and, since lawmakers are too afraid to either raise taxes or cut spending, there's only one solution: legalize (and heavily tax) drugs, sex and gambling.

Using this mindset, let's do a few hypotheticals and use some fuzzy math to see if we can't recoup $12 billion.

Step 1: Make marijuana legal. The Illinois legislature already failed to act on a medical marijuana proposal in 2010 but why not try again with a plan to make the stuff available for recreational use.

Even with just a moderate tax on toking the state would be raking in the dough. If California passes their ballot initiative to reform marijuana laws, some economists predict the state could reap up to $1.5 billion in additional tax dollars. Though Illinois has fewer people than California, legal weed would likely be an equally big boon.

Add the money saved by not locking up every pothead that gets caught in a traffic stop and the legitimate businesses that would spring up around the new industry and you're talking at least an additional $1 billion.

Step 2: More Strip Clubs. One city in Illinois has already had to file for bankruptcy. In 2009, East St. Louis suburb Washington Park claimed Chapter 9 because it had assets of less than $50,000 and debts of more than $1 million.

How does the economically-deprived city pay its bills today? With titty bars, of course. The village supposedly charges five-figure licensing fees and then keeps a very hands-off policy on what happens behind the clubs' closed doors. The tax revenue keeps the city coffers filled in a place half the population lives below the poverty line.

Now, imagine if Illinois relaxed its regulations and licensing process but doubled the fees for strip clubs? How much extra could that bring in? Since boobies are now banned in Missouri strip clubs, let's guess at least an extra $50 million.

And if they were to legalize and tax prostitution, as Nevada has already done, they're looking at an additional $10-15 million.

Step 3: Jackpot. Rod Blagojevich already raised the rent for riverboats in 2003, bringing in an additional $250 million to help the state's then-manageable $5 billion deficit. Why not double-down and raise rates again? It's not like gambling addicts are suddenly going to give up their habit. Throw an additional $250 million in the pot.

Step 4: Repeal the smoking ban and raise cigarette taxes. Casinos say the smoking ban resulted in a 19 percent drop in revenue the first year it went into effect. That needs to be recouped pronto and there's only one way to do it.

Once the smokers are allowed back in public, the next step is to raise the amount of taxes paid per pack of cigarettes. Right now Illinois charges about 98 cents per pack, which ranks 30th out of the 50 states. Lawmakers already considered raising the tax by $1 per pack, which was projected to bring in almost $300 million. Why not make Illinois on par with Rhode Island, which charges a whopping $3.46 per pack? Bust out the old calculator and you'll see that brings in an extra $150 million (on top of that original $300 million figure.)

Step 5: Profit. Final tally has our sin taxes raking in approximately $3 billion in the first year alone. It's not enough to cover the entire budget deficit but it certainly makes a dent and could keep essential services like kindergarten from going away.

The more puritanical people in the state will no doubt object to the unorthodox fund-raising measures but drastic times call for drastic measures. It's easy to take the moral high ground here but the bottom line is none of these changes affect anyone other than the people participating in the sins. (Which they were already doing and not paying for anyhow.) And besides, between Blagojevich and the Cubs, it's not like the state's reputation could sink any lower in the eyes of America.

Read Part 2 here.

DISCLAIMER: The views expressed herein should be construed only as argument for the sake of argument, and not as the personal opinions of the authors. In fact, the authors' positions in "Tuesday Tussle" are decided by coin toss.

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