WashACE Report Questions Sustainability of ''Sin Taxes''.

OLYMPIA, Wash. -- The Washington Alliance for a Competitive Economy (WashACE) released the sixth of its 2005 competitiveness briefs -- this one titled, "Wallowing in Sin Taxes."

The WashACE brief argues that taxes on cigarettes, liquor, beer, wine, soda, candy, gum and gambling

Applying the WRC/REMI model of the Washington economy demonstrates that a package of sin taxes generating $783 million in the upcoming biennium would cost the state as many as 3,000 jobs by 2010. The higher taxes would raise the cost of living, reduce household income, and chase consumer spending out-of-state, resulting in job losses.

WashACE was prompted to look at the so-called "sin taxes" after former Gov. Gary Locke incorporated many of them into his plan to balance the state's 2005-07 budget. At the time, Washington had a $1.6 billion revenue shortfall, and the governor proposed taxing wine, beer, liquor and soda pop. His proposal, which included a total of $640 million in new taxes, also included a one-percent gross receipts tax on doctors.

The brief, released March 21, points to major problems associated with sin taxes. "With the probable exception of the Botox tax, these taxes are regressive, falling most heavily on lower-income taxpayers," said Richard Davis, president of the Washington Research Council.

"If lawmakers choose to rely on such narrow-based taxes to support the general fund, they will face a continuation of the recent pattern of shortfalls, program cuts and budget legerdemain," said Dr. Kriss Sjoblom, WRC vice president for research.

The brief also argues that the state's budget is already overly dependent on these kinds of revenues. "The big problem is the Legislature diverts these funds to several expensive programs," Davis said. "These programs need a constant supply of funding and simply cannot be sustained by taxes with unpredictable returns."

"Over time, as society becomes wealthier, the share of income spent on food, alcohol and tobacco falls," Sjoblom said. "This pattern is clear in the data on national consumption expenditures collected by the U.S. Department of Commerce's Bureau of Economic Analysis. Foods and other than alcoholic beverages were 21.6 percent of consumption expenditures in 1960, and 12.3 percent in 2004."

Since then legislators have proposed other "sin taxes" on non-tribal gambling, cigarettes and candy.

Benefiting from a $739 million boast in the state revenue forecast, Gov. Christine Gregoire announced on Monday the state needs more than $203 million in new taxes to balance her $25.8 billion 2005-07 budget. She wants to raise taxes on cigarettes by 20 cents a pack and reinstate a portion of the state's inheritance tax.

All of the WashACE briefs are available at www.awb.org, www.waroundtable.com or http://researchcouncil.blogs.com/weblog/.

The Washington Alliance for a Competitive Economy is a partnership focused on improving the state's economy and business climate. The Association of Washington Business, the Washington Roundtable and the Washington Research Council founded it in 2000. Its first report, released in October 2000, served as the starting document for the Washington Competitiveness Council formed by Gov. Gary Locke in 2001.