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Cook County is facing a budget shortfall. Cook County Board President Toni Preckwinkle has rightfully earned political goodwill for proposing serious changes to how county officials spend taxpayers’ money. She has challenged public employee union bosses to come to the negotiating table, and is utilizing private sector contractors to keep costs low.
However, when Preckwinkle submitted her fiscal year 2012 budget proposal, she stopped shy of more spending cuts and instead proposed tax increases. The majority of tax increases target items that many consider politically incorrect, such as car-related expenses, amusement devices, tobacco and alcohol. Taxes on these items are known as “excise taxes.” Excise taxes are not traditional taxes on income or consumption. Instead, they are special taxes that target specific goods. Preckwinkle has defended these tax proposals by stating the responsibilities of her office compel her to push policies that are in the well-being of county residents.
Cook County’s proposal
The proposed fiscal year 2012 budget includes tax increases and the expansion of taxable definitions. The budget proposal includes the following tax increases on alcohol:
- A 50 percent tax increase on beer. Current rate is 6 cents per gallon; proposed rate is 9 cents per gallon.
- A 50 percent tax increase on alcohol containing 14 percent or less alcohol by volume (wine). Current rate is 16 cents per gallon; proposed rate is 24 cents per gallon.
- A 50 percent tax increase on alcohol containing more than 14 percent but less than 20 percent alcohol by volume (dessert wine or other liquor). Current rate is 30 cents per gallon; proposed rate is 45 cents per gallon.
- A 25 percent tax increase on liquor containing 20 percent or more alcohol by volume. Current rate is $2 per gallon; proposed rate is $2.50 per gallon.
The proposed amendment specifically mandates that the consumer must bear the cost of these tax increases. But a consumer in Cook County already pays eight different direct taxes on a bottle of liquor: a county sales tax of 1.25 percent, county excise tax of $2/gallon, city sales tax of 1.25 percent, city excise tax of $2.68/gallon, state excise tax of $8.55/gallon, state sales tax of 6.25 percent, federal excise tax of $13.50/proof gallon, and a transport tax of 1 percent. Add these all together and it turns out that a whopping 58 percent of the bottle cost goes to taxes and fees.
At $13.23 of taxes per gallon, the liquor tax already is one of the highest in the country. On the other hand, taxes on a bottle of liquor in neighboring Indiana only add up to $2.68. These proposed tax increases make the retailers of Cook County even more uncompetitive while burdening the hardworking taxpayers of Illinois.
Why the Cook County proposal doesn’t work
Cook County is not facing a $315 million budget gap because it taxes too little. Instead, the county has spent beyond its means. To remedy this, the Board should look to spending cuts, not tax increases. Increasing taxes in a down economy while the state unemployment rate lingers at 10 percent will not solve the budget deficit. In fact, it could make it worse.
As Preckwinkle pointed out, some consumers may limit their consumption because of higher taxes. While she believes this may lead to increased well-being, it could also lead to an even bigger budget hole. The proposed tax increases would hit the hospitality and tourism industries especially hard – including restaurants, bars, hotels and retail stores. Industry analysts say the Chicago-area hospitality employment is still 13,000 jobs below pre-recession levels. This tax could add hundreds of more residents to the unemployment rolls, and analysts have predicted Cook County could lose upwards of 270 jobs if the alcohol taxes are increased. The increase could also cause a decline in retail sales of nearly $16 million – far more than the $11 million in revenue that Preckwinkle predicts these taxes will generate.
What’s more, excise taxes disproportionately hurt the poor. According to the nonpartisan Tax Foundation, individuals earning less than $20,000 per year face federal alcohol tax burdens that are more than 18 times higher than individuals making in excess of $200,000. That is why excise taxes are considered one of the most regressive taxes in the U.S. tax code. Harming families across Cook Country and making Illinois’ small business uncompetitive is not the answer.
Further, increasing taxes on alcohol or other politically-incorrect items in the name of health betterment is not a long-term budget solution. In fact, the argument that this proposal is about health and not simply revenue is an ironic one. On one hand, the government is telling people to stop these vices (alcohol, tobacco, etc.). On the other, the Cook County budget will depend on smokers to continue smoking and drinkers to continue drinking. It’s perverse, and clearly has little to do with improving health.
The Board should not pass a budget that targets low-income workers and chases business to neighboring states. Instead, fixing budget shortfalls starts with reining in excess spending and increasing revenue by putting more people back to work.
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