US Sin Tax Revenue Soars with Shifts in Consumer Habits

US tax income from alcohol and tobacco has increased as people change what they buy and consume.

The US government has traditionally made money from taxes on things like alcohol and tobacco. However, as people's spending habits change, states are making more money from taxes on activities such as sports betting and marijuana sales. A Moody’s Investors Service report indicates that these changes match what consumers want and help states financially when they embrace these new sources of tax income.

Legalization Drives Growth

Many US states are now making money from legal sports betting and marijuana after changing their laws to allow these things. In 2018, a major court decision let almost 40 states start legal sports betting. Also, more than 25 states have made marijuana legal. These changes have led to an increase in the money states get from taxes on these activities.

• Sports betting is legal in around 40 states.
• More than two dozen states have legalized cannabis.

Changes in how taxes are applied to sports gambling.

Governments charge taxes on the money made from legal sports betting. For example, New York has a tax rate of 51% on this income, Pennsylvania takes 36%, and Michigan charges a lower rate of 9.65%. Even with these taxes, companies that offer betting are spending a lot of money to improve their apps and websites for betting on sports because they think more people will want to bet using their phones in the future.

Adjusting to What Customers Want

Tax income from taxes on products like alcohol and cigarettes changes as people's preferences and behaviors change. Recently, there has been a move from usual products such as tobacco to newer ones.

• Consumers are betting more on sports, particularly via mobile apps.
• There's increasing legalization and use of cannabis products.

Governments must update their laws to benefit from these changing sources of income.

Moody's Views on Changes in Taxes on Unhealthy Products

Moody's report highlights how taxes on activities considered harmful, like smoking and gambling, are changing along with what people do for fun. The report points out that even though the usual taxes on things like cigarettes and alcohol are still there, new habits are changing which taxes are important. Two big trends to keep an eye on are the growing number of people playing games on their phones and more places making marijuana legal.

Governments are earning more money from taxes on things like smoking, drinking, and gambling because people are changing what they want, and companies that provide gambling are putting a lot of money into making their mobile games better.

Challenges and Opportunities

States are earning more money from taxes on things like gambling, but there are issues, too. Some places let gambling companies subtract their advertising costs before paying taxes, which means the state doesn't get as much. Even so, the money from these taxes is becoming a bigger part of state budgets, and states want to see if they can get even more.