Policy Documents

Research & Commentary: Illinois' Alcohol Tax Is Helping Neighbor States

November 2, 2009

Illinois' alcohol tax increases, which the legislature pushed through to fund a $31 billion capital works plan, are beginning to have their troubling consequences. Neighboring states have dramatically lower alcohol taxes, and a large share of Illinois' population lives near these lower-taxed states. That's creating economic and revenue problems for Illinois.

Illinois consumers have started crossing the state line to purchase their alcohol, because the state's liquor tax is three to four times its neighbors'.

Current liquor tax rates:

IL - $8.55 per gallon
IN - $2.68 per gallon
WI - $3.25 per gallon
MO - $2.00 per gallon
IA – Is a control state and does not have a comparable tax rate.

Illinois' beer and wine taxes are substantially higher as well. The St. Louis Post-Dispatch recently reported, "Missourians, unless they're drinking all that extra booze themselves (1.29 million liquor bottles), could be getting a side benefit--a half million bucks a month in extra taxes." And of course Illinoisans purchase additional goods and services while over the border buying alcohol.

The real problem in Springfield is not a lack of revenue, but too much spending, a poor business climate created by high taxes, and inefficient government practices. An Illinois Policy Institute study found, "State spending in Illinois has skyrocketed over the past decade, increasing 39 percent from 1998 to 2008 (after inflation)," while the population has grown only 7 percent.

Until the legislature decides to restrain spending growth and implement real reforms, taxes on everything--from alcohol to incomes--will continue to rise. With responsible spending reforms and a less-burdened economy, the state would be able to pay for infrastructure improvements with existing revenue instead of reaching still further into taxpayers' pockets.

The documents linked below offer additional information about alcohol and other "sin" taxes.

----------

Illinois Liquor Stores Brace for Tax Hike
http://stlouis.bizjournals.com/stlouis/stories/2009/08/24/daily41.html
The St. Louis Business Journal interviews business owners on the effects Illinois' alcohol tax increase will have on their business and workers.

"Sin" Taxes Hurt Sinners and Saints Alike
http://www.ntu.org/main/press_commentaries.php?PressID=1102&org_name=NTU
This commentary by the National Taxpayers Union outlines how the burden of "sin" taxes is not placed only on users but rather is shared by all taxpayers.

Excise Taxes Impose Growing Burden on the Poor
http://www.heartland.org/policybot/results/21931/
This article from Budget & Tax News focuses on the special burden excise taxes place on the poor. The article notes: "The portion of income spent on alcoholic beverages by the lowest fifth of earners is double that of middle earners and more than three times that of the highest earners, on average."

A Critique of the National Research Council and Institute of Medicine's Recommendation to Raise Alcohol Excises to Curb Underage Drinking
http://www.taxfoundation.org/publications/show/79.html
The Tax Foundation reports high alcohol taxes are not an effective way of reducing underage drinking. It also explains the burdens high alcohol taxes place on the public.

Missouri Liquor Sales Skyrocket after Illinois Alcohol Tax Increase
http://www.examiner.com/x-21037-Illinois-Statehouse-Examiner~y2009m10d7-Missouri-liquor-sales-skyrocket-after-Illinois-alcohol-tax-increase
The recent surge in alcohol tax revenues in Missouri can be directly attributed to Illinois raising its tax rates. The article warns legislators that the implementation of even more "sin" taxes will be a boon for neighboring states.

Research & Commentary: "Sin Taxes" Are Flawed Tax Policy
http://www.heartland.org/article/25076/
This Research & Commentary by Heartland Institute Budget and Tax Legislative Specialist John Nothdurft documents the effects of "sin" taxes on taxpayers, the economy, and budgets.

Research & Commentary: The Best and Worst Ways to Eliminate a Budget Deficit
http://www.heartland.org/full/24760/
This Research & Commentary by Nothdurft outlines what works and doesn't work to reduce state budget deficits.

Ten Principles of State Fiscal Policy
http://www.heartland.org/policybot/results/19354/
This booklet gives policymakers and civic and business leaders a highly condensed, easy-to-read guide to state fiscal policy issues. It presents the 10 most important principles of sound fiscal policy, from "Above all else: Keep taxes low" to "Protect state employees from politics."

----------

For further information on the subject, visit the Budget & Tax Issue Suite on The Heartland Institute's Web site at www.heartland.org.

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Web site, contact Legislative Specialist John Nothdurft at 312/3774000 or jnothdurft@heartland.org.