Marijuana, Sports Betting Drive Tax Revenue Growth in US States

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American state governments have long bolstered their coffers through the implementation of levies known as “sin taxes” imposed on goods such as alcohol, beer, cigarettes, and other tobacco products. Society’s shifting vices, however, have brought changes to the tax scene, with marijuana and sports betting becoming the newest revenue drivers. Recent years have witnessed an overhaul in the revenue compositions of several states in light of these developments.

Take, for instance, Illinois Governor J.B. Pritzker, spotted on February 21, 2024, heading to the State Capitol to unveil the state’s financial pulse and future outlook. The robust revenue steams gleaming from betting and marijuana taxes shine a promising light on the state’s economy.

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Currently, the landscape in 38 states and Washington, DC encourages some manner of sports betting, a significant surge compared to the 25 states allowing recreational cannabis use for adults. Moody’s Investors Service identifies both regulated sports betting and recreational marijuana as integral keys unlocking state and local revenue.

The research firm notes, “Tax revenue generation remains tethered to shifting consumer preferences, particularly concerning alcohol and tobacco. Private industry dances to this tune with evolving product offerings continuously redefining the ‘sin tax’ base.” Tax rates swing widely across the states, shaping the potential revenue for state and local governments and influencing consumer behavior significantly.

Gaming firms often dangle the carrot of increased tax earnings before state regulators to encourage betting expansion. The unique tax benefits tied to marijuana also explain the quickened pace some states have adopted in approving sports betting and recreational marijuana.

Entering the new year, budget shortfalls lurked in the fiscal shadows of more than half the American states, according to Pew. Accounting for some of the worst budget problems were massive states like California, New York, Pennsylvania. While California contends with its budget issues without the help of sports betting, New York and Pennsylvania stand as two of America’s largest online sports betting markets. The revenue in these two states is maximized by two of the highest tax rates on those activities.

Moody’s adds its voice to the fiscal discussion, highlighting that states impose hefty taxes on gross gaming revenue from sportsbooks while others offer deductions on costs carrying long-term implications for business viability.

In a push for higher revenues, some states are eyeing the end of deductions for sportsbook operators on promotional spending, suspecting that closing this loophole could lead to a revenue bump.

Interestingly, recent Moody’s report shows that states taxing alcohol, tobacco, marijuana, and sports betting generate a minimum of 2.5% own-source revenue, a fine contrast to the paltry 0.7% derived from liquor and tobacco alone.

This shift reflects the growing societal acceptance of betting and marijuana. A rising tidal wave of online sports betting popularity is also influencing casino operators, pushing them to lean deeper into mobile gaming.

It’s for this reason, states like Illinois and New Jersey are pursuing tax increases on internet-based wagering. However, a note of caution amiss optimism comes from Moody’s, which points out that many states are experiencing a rise in alcohol tax revenue and surprisingly steady tobacco levies.

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Melinda Cochrane is a poet, teacher and fiction author. She is also the editor and publisher of The Inspired Heart, a collection of international writers. Melinda also runs a publishing company, Melinda Cochrane International books for aspiring writers, based out Montreal, Quebec. Her publication credits include: The art of poetic inquiry, (Backalong Books), a novella, Desperate Freedom, (Brian Wrixon Books Canada), and 2 collections of poetry; The Man Who Stole Father’s Boat, (Backalong Books), and She’s an Island Poet, Desperate Freedom was on the bestseller's list for one week, and The Man Who Stole Father’s Boat is one of hope and encouragement for all those living in the social welfare system. She’s been published in online magazines such as, (regular writer for) ‘Life as a Human’, and Shannon Grissom’s magazine.