"Temporary" Taxes That Stuck

Are taxes ever really temporary? Often, taxes are added or increased to balance a state budget, pay for natural disaster related expenses or other state or government needs. Most of these taxes were only supposed to be paid until the issue was resolved; however, there are some taxes that stuck around.
Johnstown Flood Emergency Tax
One such temporary tax that ended up becoming permanent was the 1936 Johnstown flood tax. Although this tax was set to expire in 1937, it was extended various times until the tax became permanent in 1951. Currently, the tax rate is set at 18%.

The Johnstown flood tax was a 10% temporary emergency tax imposed on alcohol sold throughout Pennsylvania. The tax was meant to cover the costs of cleanup and repairs needed after the 1936 flood in Johnstown, PA that year. Although the tax was meant to expire after all the costs were covered, it was instead raised in 1963 to 15% and in 1968 to 18%. Since the money collected covered the costs of the flood many years ago, now the money goes to the states' general fund for discretionary spending.

Over the years, several government officials have tried reducing the flood tax. In 2005, Rep. Ron Raymond proposed reducing the flood tax by 3% per year, equal to $10 million per point. In 2009, he proposed a bill that would reduce the Johnstown Flood Tax yearly, and eliminate it by 2011. Other legislatures are considering alternatives to reduce this tax. Several PA municipalities have tried requesting the state allocate a portion of the 18% Johnstown flood tax to aid municipalities where tax-exempt properties are numerous.

Residents of Pennsylvania have long opposed this tax because of its high rate. The tax is 18% in addition to a sales tax of 6%, bringing the cost of alcoholic drinks up significantly. There are people on both sides of the flood tax debate. Advocacy groups who want to limit alcohol consumption are in favor of the high tax rates, but unions who want to protect liquor resellers who oppose it.

Efforts from various government officials to cut back the flood tax have been fruitless thus far.

Cigarette Tax
The cigarette tax was, at one time, temporary. Initially, it charged 0.1 cent per cigarette and ultimately became permanent in 1951. The tax was originally a way to increase federal revenue during the Civil War; however, the rate went up several times during the 1800s and is still active today.

The first federal excise tax on tobacco was proposed in 1794 by Alexander Hamilton. James Madison opposed the general tobacco tax stating it would be a burden to the poorer classes. This however did not deter the government from passing the tax law. As tobacco sales increased with greater consumer consumption, the government latched onto this tax and continued increasing till today. Most recently, President Obama signed into law a cigarette tax increase from 39 cents to $1.01 per pack of cigarettes and from 19.5 cents to 50 cents per pound of chewing tobacco. This initiative was part of the President's State Children's Health Insurance Plan.

Cigarette tax vigilance has become so strict that some states have resorted to going after residents who buy cigarettes online in an attempt to avoid the tax. In Hartford, Connecticut for example the Department of Revenue Services mailed sales tax bills to 928 buyers of cigarettes online without paying the sales tax. The cigarette tax in Connecticut is the second highest in the country. In this state, the tax increased from $2-3 a pack. The highest cigarette tax is in Rhode Island where it is $3.46 per pack. Even other countries are increasing their tax rates in an effort to meet state revenue shortfalls and discourage smoking. Japan for example, is increasing their cigarette prices by 33%. (To learn more, read Paying Uncle Sam: From Tobacco To $1 Trillion.)

California Earthquake Tax
The Earthquake Relief Temporary Sales Tax also known as the California Earthquake Tax. It is a 0.25 cent increase in sales tax enacted after the Loma Prieta earthquake in San Francisco Bay on October 17, 1989. The quake leveled freeways and caused widespread damages. Governor George Deukmejian proposed this tax to help pay for repairs and set it to expire in 1990.

According to the California State Board of Equalization, the California Earthquake Tax did expire on December 31, 1990. The sales tax helped collect $776.3 million in tax revenue that was used to fund earthquake recovery expenses. (For tips on how to handle Mother Nature's wrath, see Preparing For Natures Worst.)

Personal Income Tax
In 2009, New York State Governor Patterson announced a budget agreement meant to close the largest budget gap in the state's history. The enacted budget included, among other provisions, a temporary personal income tax surcharge for higher-income taxpayers. The purpose of this tax was to increase the tax rate for higher income filers for a three-year period from tax year 2009 to tax year 2011. The goal of the tax surcharge was to produce $4 billion in revenues in the 2009-2010 time span. Like many other temporary taxes throughout history that were meant to last until certain expenses were covered, only time will tell whether or not this tax does indeed expire in three years. (For more, see Common Tax Questions Answered.)

Taxpayers should be wary when a new "temporary tax" is introduced. If we've learned anything from history, it's that temporary taxes can be anything but.

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