Kentucky House Approves Increase in Cigarette and Liquor Taxes

February 12, 2009

The Kentucky House voted 66-34 yesterday to raise the cigarette tax by 100% and extend the sales tax to liquor sales in stores (while preserving the separate excise tax 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.

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