Washington Think Tank Says Reliance on Sin Taxes Won’t Work
Jan. 29, 2010
Washington Policy Center (WPC) concludes Washington state lawmakers, who are struggling to solve a $2.6 billion deficit, will not sustain a balanced budget by relying on sin taxes.
WPC, www.washingtonpolicy.org, draws these conclusions:
- Sin tax increases are not a viable long-term budget solution.
- Other states have failed to solve long-term issues with sin taxes.
- Washington netted $2.5 million less in tobacco tax revenue than anticipated in this decade.
- Society’s problems are not alleviated and taxes on sin products encourage black market smuggling.
The conclusions are contained a paper authored by WPC’s Paul Guppy, vice president for research, and Betsy Hansen, a research assistant.
In considering sin-tax increases, lawmakers ostensibly have two motivations: They want revenue and they desire to change consumer behavior. That includes drinking, smoking, and overeating.
The authors state a past tobacco tax increase yielded $2.5 million less than anticipated because cigarette sales have decreased 1-2 percent a year. That’s after the state established the third-highest cigarette tax in the nation. Smokers have been buying their cigarettes from Indian smoke shops or from out-of-state.
Lawmakers in other states have been unsuccessful after raising sin taxes, according to the study:
“Ten states increased cigarette taxes: Arkansas (new rate of $1.15), Florida ($1.34), Hawaii ($2.60), Kentucky($0.60), Mississippi ($0.68), New Jersey ($2.70), New Hampshire ($1.78), Rhode Island ($3.46), Vermont ($2.24) and Wisconsin ($2.52). New York and New Jersey hiked taxes on alcoholic beverages.”
The Tax Foundation found that in most cases, state lawmakers’ plans failed to achieve either of the goals advanced to justify excise tax increases. The tax increases did not significantly change peoples’ behavior, and they failed to generate the new revenues their sponsors predicted.
The shortfall in expected revenue, combined with chronic overspending, contributes to unsustainable budgets and contributes to an ongoing sense of crisis in state finances.”
WPC points out that a new federal law was enacted in Feb. 2009. It raised the price per carton by $6.16. The goal is to fund the State Children’s Health Insurance Program (SCHIP) for four million kids.
However, the results have opposite of what was expected, according to the study:
“Public revenues, businesses and consumers are affected at both the state and local levels. As the federal increase affects the retail price of tobacco products and consumption shifts, states with already high cigarette taxes collect less revenue for themselves.
Businesses experienced a fall in demand for their goods and smokers feel policymakers are unfairly punishing them for engaging in politically unpopularbehavior.”
The revenue shortfall for fiscal year will total $2.3 billion.
WPC believes Washington state coffers are expected to suffer, as well:
“Combined with a high federal levy, Washington state’s high cigarette tax creates a strong incentive for consumers to engage in systematic tax avoidance, through increased internet purchases, out-of-state trading, and black market sales. For example, Washington’s state cigarette tax is nearly 20 percent higher than Idaho’s state tax, and more than 70 percent higher than Oregon’s state tax.”
Let’s hope for government reform so that lawmakers aren’t tempted to scurry around for superficial means to balance the budget. At stake are economic and political liberty.
From the Coach’s Corner, for common-sense efficiencies in Washington state, here are other recent columns:
Government’s Reliance on Huge Tax Increases Reaches Absurdity
Study: Tax Increases Threaten More Job Losses in Washington
Washington State Senators Claim Income Tax Is ‘Fiscal Reform’
Will Government Policies Ever Promote Economic And Political Liberty?
Do Washington’s Budget Woes Warrant Government Reform?
The Great Recession: Government Killing Business
Analysis: Steps for Economic Success in Washington State
How Washington Shows Filmmaking Leadership
A headline in the Los Angeles Times caught my eye. It read: “Filmmaking incentives losing glamour in cash-strapped states.” That could be big news for Hollywood’s motion picture industry.
The article states more than 40 states have been providing tax breaks for movie and TV producers as an economic stimulus, but in the face of declining tax revenues many states are thinking of rescinding the incentives, according to the newspaper (http://bit.ly/5Xl6H5).
For me being based in the greater Seattle area, any thought of revoking film tax incentives prompts me to react this way: “What a revolting development that is.”
You might recall it was the signature phrase of the character, Chester A. Riley in “The Life of Riley” in a radio show from 1944-1951 and television show from 1949-1950 and 1953-1958. William Bendix acted as Chester Riley, whom I happily met and to whom I once served food as a teenage bus boy in Palm Springs.
But if other states lack vision and want to cut back on filmmaking, I’m happy for Washington state because it means less competition. Washington is assertive in filmmaking and economic development.
My sense is that all states should keep the tax incentives in place. Ostensibly, some states do not understand that films actually increase their employment rolls and produce tax revenue.
For the first time in California’s history in an effort to keep Hollywood economically viable, state lawmakers approved a $500 million incentive plan in 2009. It includes tax credits ranging from 20 to 25 percent. But that is a bit paltry compared to other states.
For example, Michigan has a 40 percent incentive and Washington’s is 30 percent.
(Disclosure: My firm produces TV commercials and I admit to a personal bias – I love movies and television.)
When I’m not sailing with buddies, gardening or playing with my pup, I love settling down to a movie and great story. So, I’m predisposed to the film industry.
As a kid growing up in Palm Springs, it was common to see movie stars such as Mr. Bendix, Lucille Ball and Dean Martin. Although I come from a middle class family, Bob Hope and James Stewart maintained homes less than a block away. It was quite an experience watching Mr. Hope wash his Chrysler. I mean, he was bigger than life to me and he washed his own car? Once, I nearly hyperventilated when he spoke to my brother and me when we were playing in the street after a rainstorm – sailing Popsicle sticks in a puddle.
Later, as an 11-year-old newspaper boy delivering The Desert Sun newspaper, my customers included impresario Billy Rose, comedian Jack Benny, and movie mogul Darryl Zanuck. It was fun standing outside waiting to be paid each month by Mr. Zanuck – he threw frequent pool parties with a bevy of starlets.
Prior to becoming a management consultant and the business phase of my career, I was a broadcaster for 20 years. Working in Hollywood at KTTV, KIIS-FM, and as a freelancer at CNN, it was routine to see movie stars. Earlier in Palm Springs, I enjoyed reporting stories on celebrities from Frank Sinatra to Ronald Reagan on the campaign prior to his election.
One of my favorite TV interviews was with gifted character-actor Simon Oakland.
My friends included producers, writers, studio school teachers and script supervisors. And I was acquainted with the wonderful Stewart Stern, the Academy Award-nominated screenwriter (think: “Rebel without a Cause.”)
OK, you get the picture. I know the fun and business of filmmaking. Oh, and yes, it is a serious business.
Ruthann Taylor is the program manager at WashingtonFilmWorks (WFW) in Seattle.
WFW is a nonprofit organization that facilitates filmmaking in Washington. It was launched by the Legislature in 2006 under a bill sponsored by Sen. Lisa Brown of Spokane.
WFW can approve funding assistance for productions in Washington. Thirty-one film projects have been funded since 2007. As a result, WFW says the state has netted $37.4 million in economic benefits.
Here is an edited interview with Ms. Taylor:
Q: How does your funding assistance of up to 30 percent work?
A: Productions must meet the following thresholds in order to qualify: $500,000 for feature films; $300,000 for television (per episode); and $150,000 for commercials.
Productions that meet the above thresholds submit an application that includes a script, line item budget, proof of funding, a finance plan, and a producer’s letter of intent. The board of WashingtonFilmWorks reviews the application materials and votes to approve or decline the project.
Q: What are some examples?
A: Not sure what you mean by examples but some projects approved by the program include these feature films:
- World’s Greatest Dad
- The Immaculate Conception of Little Dizzle
- The Details
- The Ward
Q: How has the new 30 percent tax incentive worked to generate filmmaking in Washington?
A: Approximately 34 states nationwide have some type of incentive program to entice film productions to the state. The majority of incentive programs are administered via a department within the state government offering tax credit options or some type of refund option. Washington state is unique insofar as WashingtonFilmWorks is a private non-profit offering a cash back in 30 days incentive.
Q: In terms of competition, has the 40 percent-Michigan incentive been a factor?
A: We are targeting different types of films than Michigan. Our typical budget range is $2 million to $15 million as this means the productions are using local cast, crew, and production resources.
Q: How about the efforts to keep production in California?
A: They recently launched their own incentive and we’ve yet to see how that program is implemented. For more information on incentives you can visit www.entertainmentpartners.com.
Q: Are there any movies in the production pipeline?
A: WashingtonFilmWorks recently approved funding assistance for two features films and two commercials.
Q: What are the other Washington state incentives?
A: The Seattle Office of Film + Music offers $25 a day permits when using city owned property. Motion picture or video production businesses are exempt from sales and use tax on sales or use tax on rental of production equipment, and sales tax on the purchase of production services. The exemptions do not apply to the outright purchase of production equipment.
Q: How are you funded?
A: WashingtonFilmWorks is a private non-profit funded by businesses who have B & O tax liability. These businesses make contributions to WashingtonFilmWorks and in turn are credited dollar for dollar by the Department of Revenue.
Q: What are your challenges?
A: We are able to raise $3.5 million per calendar year which means not a lot of money available to attract the larger productions.
Q: How is it going?
A: Since inception we have seen exponential growth in the amount of projects shooting in the state.
Q: What else would you like to add?
A: You might want to check out a great segment on Seattle City Stream, http://bit.ly/5Hjvpz.
Thank you, I will.
In conclusion, it is encouraging news that Washington is so enlightened about the potential of economic development via films. Filmmaking stakeholders are indeed “Sleepless in Seattle.” They are hard at work creating jobs and having fun in the process.
And it’s a fun investment for the state’s businesses to get tax deductions or as a source for passive income.
From the Coach’s Corner, for more information on filmmaking in Washington, here are two helpful Web sites:
- WashingtonFilmWorks, www.washingtonfilmworks.org
- Seattle Film Office, www.seattle.gov/filmoffice