Don't Mess With Taxes

Sin taxes are a common revenue raising technique at the state and county levels. At least a portion of the increased tax collections usually goes to help fund a cause that has a direct connection with tax.

But not always.

Almost four years ago voters in voters in Cuyahoga County, Ohio, approved a ballot initiative that increased the county's cigarette tax by 1.5 cents per cigarette.

But instead of going toward health programs, the Ohio county's cigarette tax money supports local arts and cultural organizations.

As someone who enjoys cultural offerings locally and when the hubby and I travel and a former smoker, I'm pleased to report on this Follow-up Friday that the Cuyahoga County program is a great success.

Arts groups in the greater Cleveland area -- the orchestra, museums, even the local public broadcasting stations -- have received this year alone around $15 million from the cigarette tax collections.

Kentucky collections not so productive: In neighboring Kentucky, however, tax officials are seeing collection of tobacco taxes drop as more Bluegrass State smokers are turning to lower-tax alternatives or are growing their own.

In this second part of this week's Follow-up Friday, Kentucky budget officials are predicting a 17.2 percent decline in state revenue from the cigarette tax this fiscal year, which ends June 30, 2012. That would continue the trend from last fiscal year, in which the state's $262.4 million in cigarette taxes were down nearly 6 percent from 2010 collections.

The Kentucky situation is similar to that in New York, which has the highest cigarette tax in the United States. But since there aren't any laws prohibiting Empire State residents from growing tobacco at home for personal consumption, many are doing just that to feed their nicotine habits and save tax dollars.

The same is happening nationwide. The U.S. Department of Justice estimates that states have lost $5 billion a year because people are using smoking alternatives that have no state retail tax.

If states continue to lose money on tobacco and other sin taxes, don't expect them to disappear. Rather, look for tax collectors to beef up enforcement of what's on the books and hike them even more to cover the losses.