Alcohol, Gambling, Tobacco Contributors
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A T A X I N G D I L E M M A A L C O H O L , G A M B L I N G , T O B A C C O C O N T R I B U T O R S F I G H T P R O P O S E D I N C R E A S E S By P A U L R I C H A R D S T H E I N S T I T U T E O N M O N E Y I N S T A T E P O L I T I C S JAN. 21, 2004 833 NORTH MAIN, SECOND FLOOR • HELENA, MT • 59601 PHONE 406-449-2480 • FAX 406-457-2091 • E-MAIL [email protected] www.followthemoney.org T A B L E O F C O N T E N T S Introduction: Troubled Times for State Budgets .......................................3 Summary of Findings: Sin Taxes Enter the Spotlight................................4 Tobacco Tax Increases .............................................................................6 Case Illustration — Georgia..........................................................7 Tobacco Contributions in Georgia ................................................8 Contributions by Political Party .................................................. 10 Benefits of Incumbency .............................................................. 10 Backing the Winners................................................................... 10 Alcohol Tax Increases............................................................................ 11 Case Illustration — Illinois......................................................... 11 Alcohol Contributions in Illinois................................................. 13 Contributions by Political Party .................................................. 15 Benefits of Incumbency .............................................................. 15 Backing the Winners................................................................... 15 Gambling Tax Increases......................................................................... 16 Case Illustration — Maryland..................................................... 17 Gambling Contributions in Maryland.......................................... 18 Contributions by Political Party .................................................. 19 Benefits of Incumbency .............................................................. 20 Backing the Winners................................................................... 20 The Institute on Money in State Politics 2004 2 T R O U B L E D T I M E S F O R S T A T E B U D G E T S State fiscal problems, widely apparent in fiscal years 2001 and 2002, grew even worse for fiscal year 2003, with 39 states facing budget shortfalls at some point during the year.1 Thirty states missed their revenue targets.2 In 34 states, the final budget balance declined from fiscal year 2002 to 2003, and only seven states reported a final balance that exceed the 5 percent level recommended by Wall Street analysts.3 And 37 states had to reduce the budgets they had already enacted for 2003, cutting nearly $14.5 billion.4 For fiscal year 2004, state budgets declined an average of 0.1 percent, due in part to the cuts 19 states — a record high —made in spending from their 2003 levels. Collectively, states faced fiscal year 2004 budget gaps totaling at least $71 billion.5 "Many policymakers looked to their fiscal year 2004 budget deliberations with dread, as they faced another round of big budget gaps," the National Conference of State Legislatures noted in a report on state finances. "Based on initial estimates, the aggregate gap for fiscal year 2004 reached $78.4 billion. Thirty-seven states projected holes greater than 5 percent, with 19 of these facing gaps above 10 percent."6 The National Association of State Budget Officers reported that states were looking at numerous options for reducing budget deficits, including making across-the-board cuts or targeted cuts, tapping special dedicated funds, placing freezes on hiring or on salaries, authorizing early retirements, reducing benefits and cutting workforces.7 Scott Pattison, executive director of the National Association of State Budget Officers, called the 2004 budget crisis "really one of the worst fiscal situations states have ever faced in the post- World War II period."8 The National Governors Association's 2003 Fiscal Survey of the States noted that in addition to cutting budgets, governors in 20 states had recommended tax and fee increases of nearly $17.6 billion.9 1 National Conference of State Legislatures, "State Budget and Tax Actions 2003," http://www.ncsl.org/programs/fiscal/presbta03.htm, September 2003. 2 National Governors Association and National Association of State Budget Officers, "The Fiscal Survey of States," June 26, 2003, P. ix. 3 National Conference of State Legislatures, "State Budget and Tax Actions 2003," http://www.ncsl.org/programs/fiscal/presbta03.htm, September 2003. 4 National Governors Association, "Tough Economic Times Remain for States," http://www.nga.org/nga/newsRoom/1,1169,C_PRESS_RELEASE^D_5631,00.html, September 2003. 5 Dave Williams, "Budget woes squeeze states; Shortfalls yield unpopular cuts across nation," The Florida Times-Union, P. A1. 6 National Conference of State Legislatures, "State Budget and Tax Actions 2003," http://www.ncsl.org/programs/fiscal/presbta03.htm in September 2003. 7 National Association of State Budget Officers, "Budget Shortfalls: Strategies for Closing Spending and Revenue Gaps, December 2002, P.2-3. 8 Bob Mahlburg, "States' Budget Woes Mount as the Start of Fiscal 2004 Loomed, Many States Were Mired in a Sea of Red Ink," Orlando Sentinel, July 1, 2003, P. A4. 9 National Governors Association and National Association of State Budget Officers, "The Fiscal Survey of States," June 26, 2003, P. ix. The Institute on Money in State Politics 2004 3 " S I N T A X E S " E N T E R T H E S P O T L I G H T Governors and legislators frequently recommend raising so-called "sin taxes" related to alcohol, tobacco and gambling to raise revenues, because those taxes often are easier to sell politically. When budget pictures turned bleak across the nation, many state legislatures considered proposals to increase these taxes or expand the base from which they could raise money from these industries. Alcohol, gambling and tobacco interests positioned themselves to be heard in legislative halls by donating at least $45 million to state-level candidates and political parties during the 2002 election cycle. Casinos and other gambling proponents contributed about $21 million, while the alcohol industry gave about $19 million and the tobacco industry gave nearly $5 million.10 In this report, the Institute offers a state-by-state examination of sin-tax proposals affecting fiscal year 2004, finding: States are raising more than $2 billion from new "sin taxes" for fiscal year 2004. Twenty-three states increased their tobacco taxes for a cumulative increase of $862 million. Thirteen states upped their alcohol taxes for a total increase of nearly $111 million. Twenty states broadened gambling or increased gambling taxes for total increased revenue of at least $1.2 billion for fiscal year 2004. The Institute looked at the fate of three such proposals in three different states — a tobacco tax increase in Georgia, an alcohol license fee increase in Illinois, and a gambling proposal in Maryland — and the campaign contributions made by the targeted industries in those states. In Georgia and Illinois, opposition from the tobacco and alcohol industries reduced, but did not eliminate, new "sin" taxes. In Maryland, gambling expansion has been deferred despite the industry's touting of the new tax revenue it could bring in. A review of the proposals in these three states and the campaign contributions from the related industries during the 2002 election cycle shows: Sin taxes are not partisan. For example, Republicans — who were in charge of the state Senate and the governor's office — played the key roles in raising Georgia's tobacco tax. Democrats, who controlled the Legislature and the governor's office, were the principal instigators of higher alcohol taxes in Illinois. And in Maryland, a Democratic speaker of the House stalemated a Republican governor working closely with a Democratic Senate president on a gambling tax proposal. Tobacco interests gave more than $297,000 to state-level candidates and political party committees in Georgia, targeting legislative leaders and incumbent legislators seeking re-election. Democratic candidates 10 Compiled from the Institute on Money in State Politics 2002 database. The Institute on Money in State Politics 2004 4 and party committees received the bulk of the contributions, while incumbents received nearly 93 percent of the contributions that went directly to candidates. Alcohol interests contributed more than $2.6 million to state-level candidates and political parties in Illinois, giving generously to the five candidates vying to replace outgoing Gov. George Ryan and to the top legislative leaders. The industry gave 84 percent of its contributions to winning candidates and 77 percent of its funds to incumbents. Gambling interests gave almost $427,000 directly to Maryland candidates and spent tens of thousands of dollars to indirectly support candidates through other means. Democratic candidates received about twice the amount of gambling contributions that Republicans did, and incumbent candidates received 61 percent of all the gambling money while their challengers received a mere 8 percent. Further details on contributions to all state-level candidates are available on the Institute's Web site, www.followthemoney.org. The Institute on Money in State Politics 2004 5 T O B A C C O T A X I N C R E A S E S For fiscal