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Kentucky House Approves Increase in Cigarette and Liquor Taxes

1 min readBy: Joseph Bishop-Henchman

The Kentucky House voted 66-34 yesterday to raise the cigarette taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. by 100% and extend the sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. to liquor sales in stores (while preserving the separate excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. on liquor). Officials hope the increases will raise $211 million through the end of fiscal year 2010.

Notwithstanding self-serving claims that the bill was the result of “trust” between “non-political” legislators, a key sticking point in the debate is whether liquor taxes can go high enough to drive out Kentucky’s bourbon industry. Some legislators seem to argue not only that this bill does not do that, but that it could never happen:

In a speech on the House floor yesterday, Rep. Harry Moberly, D-Richmond, pleaded with his colleagues to vote for the bill because the new revenue — $52 million the rest of this fiscal year and $159 million in 2009-10 — is vital to balance the state budget in a way that averts deep cuts to schools and other vital services.

As for the liquor industry’s warnings that the bill would damages sale, Moberly said, “This argument is completely bogus. We’re not going to sell one drop of alcohol less” if the bill becomes law.

But several House members clashed with Moberly. Rep. Scott Brinkman, R-Louisville, asked him: “What if you’re wrong?”

These taxes are about revenue and forcing small groups of politically unpopular people to pay for services used by everyone else. That not only raises questions of fairness, but is poor tax policy because it has the government relying on revenue sources highly susceptible to smuggling at high tax rates.