Sin Tax

A comment by David left on a blog post of mine a bit ago (“Winning the Savings Lotto“) got me thinking more about so-called Sin Taxes and their usage in American society.

Sin taxes have been around for a long time: Pope Leo X was known to enact taxes on registered prostitutes, and in the U.S., the Whiskey Rebellion of 1794 grew out of frustration over a federal tax on alcohol and carriages passed by Congress in 1791.

While everything from pornography, cigarettes and alcohol have been the target of sin taxes, lately talk has shifted to focus on taxing unhealthy food. In the Spring of 2009, President Obama suggested that taxing soft drinks could be a way of paying for his proposed health care reform. More recently, a state representative from Mississippi proposed a 2-cent per ounce tax on soft drinks, with the revenue to go to obesity prevention programs.

Proponents of the sin tax model have pointed out that those engaging in unhealthy behavior (such as smoking, drinking and eating bad food) create a financial burden on society when they eventually suffer the consequences of engaging in those types of behaviors long term.

While this may intuitively make sense, to the best of my knowledge there hasn’t been any good, unbiased, long-term studies done on this subject that could either support or refute that assertion. I know that there have been studies published, and I’ve looked at a few, but it wasn’t difficult for me to spot biases or study inconsistencies that negated whatever point they were trying to make, so readers, if you know of any conclusive studies, I’d love to read them.

Opponents of sin taxes often point to the regressive nature of the sin tax – that is, studies have shown that in many areas, those in low income settings are more likely to be avid consumers of things such as tobacco and alcohol. Additionally, in some cases a high sin tax reduces the consumption of those goods in the above-ground economy but can cause the black market for those items to greatly expand – cigarettes and alcohol are two legal consumer items that are a good example of this. Other will also attack the sin tax model from a civil liberty perspective, saying that the government does not have the right to control those markets when while some may find those behaviors objectionable, their usage has a limited social consequence.

My personal opinion is that sin taxes are nothing more than a politically-safe way for a public official to raise funds. In some cases, I can see the logic behind doing something like the Mississippi soda tax (even if I don’t agree with it, I can see the line of logic between taxing soda to institute an obesity prevention program), but even so, I question the true effectiveness of such program. You may raise $1-million in revenue from a sin tax, but a significant portion of that money may be eaten up by the logistics of designing, implementing and collecting those taxes.

Also, in general I’m uncomfortable with the idea of the government deciding what a “negative” behavior is. I know people who smoke, and I enjoy alcoholic beverages from time to time (if you see me out in D.C., three fingers of a single malt scotch is my drink) and New Years resolution or not, enjoy unhealthy food. I don’t like the idea of paying extra for those items – as opposed to other non-“negative” activities of similar relative value – just because some people find it objectionable.

This is definitely a controversial topic; readers, what are your opinions on sin taxes?

-Michael
Twitter: @michael_dink