Rent-Seeking Behavior in the Illinois Wine Industry
According to a story from WSIL:
A plan pushed by Rep. Mike Bost, R-Murphysboro, could bolster a core of his district’s economy. Bost wants to create a fund that would go toward improving the region’s wine industry.
He’s proposing to divert a portion of the revenue from the excise tax on wine, and reinvest it in the industry. It’s classic rent-seeking behavior. He also uses the copycat argument (i.e, “other states are doing it, so mine should, too”) that many legislators use to justify production incentive programs for their favored industries.
“This is not anything that hasn’t been done in other states,” Bost said. “That is why the state of Missouri has grown its wine industry so well, and it’s because they are able to do this.”
Although it is true that Missouri provides assistance to wine producers, it does this in a manner that’s different than the one proposed in Illinois. Rather than diverting excise tax revenue, Missouri provides a generous tax credit to wine producers.
Using the “Show Me: Tax Credits” web tool, I discovered that Missouri has awarded $5,736,848.39 under the Wine and Grape Tax Credit during the past decade. The largest recipient, Stone Hill Wine Company, received a combined sum of $2,005,629.22 from 2002 through 2004:
Trend Wine and Grape Tax Credits Awarded in Missouri by Vendor
First and foremost, I disagree that a state should rely on tax credits to attract businesses. A state is better off if it has businesses that are self-sustaining, not reliant on government assistance.
That said, however, I prefer Illinois’ proposal to Missouri’s Wine and Grape tax credit program because it places the burden of the subsidy on users rather than on non-users. In Missouri’s program, all taxpayers in the state pay for the subsidy. In the Illinois proposal, only those who consume the product are assessed. It’s a user-fee system that’s analogous to the way in which gasoline taxes and tolls fund highway maintenance.
Additionally, it’s fallacious to expect that the production and consumption should be equal within the state. States like Missouri and Illinois should focus on the activities that they do best, and then realize the benefits of free interstate trade. If Illinois were serious about maximizing its wine consumption, it would specialize in some other type of production that it can do more efficiently, and then trade with another state that has a comparative advantage in producing wine.
Critics of the Illinois proposal are correct to state that the money being spent on wine production cannot be spent on other programs, such as education. However, the same can be said of the money that Missouri taxpayers spend via the wine and tax credit. No matter how it is routed, taxpayers are going to be poorer by the amount of the subsidy.