How “Sinful” Budgeting Hurts Business in Missouri

Hiking tax rates on cigarettes and alcohol would negatively affect businesses in Missouri, so the fact that the editorial board at the St. Louis Business Journal is promoting this paternalist policy is perplexing.

Raising the tax rates on “sin” products would be particularly harmful to convenience and grocery stores close to the state border, because they would lose business to states that assess lower tax rates relative to Missouri. As a similar consequence of this policy, fewer people and businesses would locate to Missouri because the costs of living and doing business would be higher here. By keeping its tax rate low relative to other states, Missouri can help ensure that its residents will shop within the state, and it can incite individuals located near the border to shop here, as well. As a consequence, Missouri can generate a higher amount of revenue.

Missouri residents and businesses would be better off if the state government pursued alternative strategies to address the budget deficit than increasing selective sales taxes on cigarettes and alcoholic beverages (or on fatty foods, soda, and tanning). If it created a low-tax environment instead, Missouri would attract more businesses and individuals to the state, and they would contribute additional tax revenue. Alternatively, if the state government stopped carving out large sections of the tax base and subsidizing the favored few, it would have fewer expenditures to cover.