from the Chicago Fed
During the Great Recession of 2008 – 09 and the subsequent recovery, revenues of state and local governments were hard hit. To get through tough fiscal times, states and localities relied on short-term revenue and expenditure strategies. This pattern continued, even as economic growth restored some measure of stability to many of their budgets. Among these strategies was hiking sin taxes to bring in new revenues.
Adjustments to sin taxes are often politically easy to make. Sin taxes are intended to discourage participation in private behaviors that society deems undesirable while raising money to help compensate society for the costs incurred from such behaviors. However, the question remains: Are sin taxes guided by clear taxation principles that reduce objectionable behaviors or are they simply a convenient means to help boost state budgets? The forum addressed this and many other related issues surrounding sin taxes, including their fairness, their efficiency in raising revenues, the costs associated with enforcing them, and how states and localities allocate revenues generated from them.