Image: Liquor store in Kentucky
Ed Reinke  /  AP
Mike Wood walks out of the Red Dot Liquors store in Frankfort, Ky., with a case of beer. A sign outside urges patrons to call their legislators over a bill that imposes a 6 percent sales tax on all alcohol sales and doubles the tax on cigarettes.
updated 3/24/2009 6:37:45 PM ET 2009-03-24T22:37:45

Faced with huge budget holes, states from Connecticut to Arkansas are eyeing higher taxes on cigarettes and booze, infuriating consumers who say the goods are the last vices they've got to help cope with lost jobs, a deepening recession and overall economic misery.

In Pittsburgh, protesters dumped beer and liquor into a river after county officials approved a 10 percent tax on poured drinks. Patrons in Oregon bars downed brews while writing lawmakers to oppose a proposed beer tax increase. And in Kentucky, protesters poured bourbon on the Capitol's front steps to demonstrate their opposition to a 6 percent sales tax on all booze.

"The way things are going right now with the economy, the first thing people want to do is go get a bottle or a beer, and soak their sorrows," said Jack Weaver of Louisville, who gathered with other Teamsters in a union hall last month to rail against Kentucky lawmakers who voted to raise the taxes as of April 1.

Sin-tax increases to help balance budgets are nothing new, but the economic meltdown has legislators proposing them even in states like Kentucky, where alcohol and cigarettes have long been sacred cows. After all, it is famous for its bourbon whiskey and is a leading producer of tobacco used in cigarettes.

"Sin taxes have quickly emerged — as they did in the last recession — as one of the popular tactics that states have adopted to bring in the extra revenue in an environment where raising most other taxes are still pretty politically radioactive," said Sujit Canagaretna, a senior fiscal analyst for the Council of State Governments.

Cold turkey time?
Faced with an unprecedented $456 million revenue shortfall, Kentucky ignored protests and raised the taxes.

Arkansas increased its cigarette tax this month, and other states considering it include Connecticut, Florida, Michigan, Mississippi, North Carolina and Oregon. Other states — including California, New York and Hawaii — are also considering raising taxes on alcohol products.

The federal government has already increased the cigarette tax by 62 cents a pack to $1.01, and Kentucky doubled its state tax to 60 cents a pack. Together, the taxes will push average prices for name-brand cigarettes to as much as $44 a carton, a $10 increase.

"It's a little extreme," said Scott Harper, 63, a former helicopter mechanic now living on Social Security and Veteran's Administration benefits. "I'm going to quit. I'll have to."

Video: Downsized indulgences Harper was trying to buy a carton of Swisher Sweets at Bo's Smoke Shop last week, but he had to settle for a pack because smokers have been flooding state tobacco stores to stock up before the tax increases.

Though some smokers and drinkers are angry, public health groups see it as an opportunity to convince people to give up their bad habits.

"This was an extremely popular public health initiative," said Tonya Chang, advocacy director for the American Heart Association in Kentucky. "When combined with the federal tax increase, we believe this will prevent more than 50,000 Kentucky children from becoming smokers and will help thousands of Kentucky adults who want to quit."

But opponents in both the legislature and the alcohol and tobacco industries say they're afraid the tax increases could lead to huge drops in sales, costing jobs and disappointing lawmakers with lofty revenue expectations.

"Ultimately, we all have limited budgets," said David Ozgo, chief economist for the Distilled Spirits Council of the United States. "And if government is taking a greater share, that reduces what you can spend on yourself."

Even in years when states are flush with cash, Ozgo said, alcohol is a popular target for tax increases. But he said they sometimes backfire when people facing higher taxes drink less.

No sympathy
Records from the U.S. Alcohol and Tobacco Tax and Trade Bureau show that a 1991 federal excise tax increase created a slight bump in revenues in 1992, followed by four years of decline, from nearly $3.9 billion to $3.6 billion.

State Rep. David Floyd, R-Bardstown, said the taxes could devastate Kentucky's alcohol and tobacco industries, which together employ some 6,000 people. Tobacco farms are seemingly everywhere in Kentucky, and bourbon distilleries dot the state's Bluegrass region.

"It's really easy for lawmakers to understand how giving tax breaks to an industry will help that industry," he said. "Why is it so difficult for them to understand that increasing taxes on an industry will hurt that industry?"

But despite the outrage in some quarters, University of Kentucky political scientist Stephen Voss said he doesn't expect much political fallout for politicians who vote to increase sin taxes, especially in the Bible belt.

"You rarely see a case where people campaign criticizing their opponents for taxing booze and cigarettes," he said. "Voters aren't going to show a lot of sympathy to the sin industry."

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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