The Wages of Sin Taxes

February 20, 2013

"Sin" taxes, typically taxes on alcohol, tobacco, sugar, gambling and fat, aim to alter behaviors and internalize negative externalities. These taxes do not limit the use of such "bad" products and do nothing to reduce societal costs, says Chris Snowdon and Michelle Minton of the Competitive Enterprise Institute.

  • The federal government has always relied on selective excise taxes in one form or another to generate revenue from the use of "sinful" items.
  • Politicians frequently cite the gargantuan costs of certain products, which include life years lost, earnings forgone and product expenditures, but all of these costs are borne by the individual, not the taxpayer.
  • Despite claims that consumers of unhealthy products place an excessive burden on public services, the evidence shows that, on average, smokers and the obese are less of a drain on public services because they draw on pensions, prescriptions and nursing home benefits for a shorter period than the healthy.

Alcohol is different than cigarettes because there are externalities, such as violence, drunk driving and property damage, that result from drunkenness. Still, the tax revenues from alcohol taxes for each state make up for the costs of drinking with several billion dollars to spare.

  • Behavioral change could be arrived at through much more effective methods than sin taxes, which bluntly create unintended consequences that damage health and stoke criminality.
  • Many sin taxes are on goods with inelastic prices, meaning that as the price goes up, demand does not change.
  • This disproportionately affects low-income consumers who are more likely to use sin goods than those with higher incomes.
  • In addition, studies show that "fat taxes" and "soda taxes" have little or no effect on rates of obesity.

Sin taxes equate to the government's overreaching desire to interfere with an individual's mode of life. By regulating and restricting such small details, an individual's freedom becomes the victim of the will of the majority. Even if the intention is to help improve the health of their fellow man, sin taxes result in greater harm to those they are meant to help.

Source: Christopher Snowdon and Michelle Minton, "The Wages of Sin Taxes," Competitive Enterprise Institute, February 4, 2013.

 

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