the official blog of the evergreen freedom foundation

Why Sin Taxes are Economically Wrong

Posted by Brett Davis - March 11, 2010

With the state of Washington facing a $2.8 billion budget gap, there’s been a lot of talk about proposed sin taxes—that is, a tax added to products or services that are seen as vices, such as alcohol, tobacco and gambling.

 
But while sin taxes may be preferred by policymakers and even some members of the public to across-the-board neutral taxes, is it sound economic policy? It’s not, according to two publications put out last year by George Mason University’s Mercatus Center: Taxing Sins: Are Excises Taxes Efficient? and Taxing Sin.

The former concludes that sin taxes do not necessarily advance the overall public interest, may hit the poor disproportionately hard and rarely work as intended. The latter addresses common myths associated with sin taxes.
 
Nevertheless, sin taxes are levied by government to discourage people—at least ostensibly— from partaking in such activities. In reality, government favors sin taxes because they provide a source of government revenue. It’s no coincidence that when states run deficits, the sin tax is typically one of the first taxes recommended by lawmakers to help fill the budget. Washington state is no exception. During this legislative session—soon to go into special session—there have been proposed taxes on candy, cola and cigarettes.
 
Why? Sin taxes are more politically palatable to state leaders, as they are usually more easily accepted by the general public because they are indirect taxes that only affect those who use the “sinful” products or services in question. Still, that doesn’t make it good economic policy.
 

Here’s a wacky idea members of the Washington State Legislature might want to consider regarding tax policy: Be neutral. The main purpose of taxes is to raise money for programs, not to play social engineer by micromanaging a complex economy with penalties (sin taxes) and subsidies. In short, the tax system should minimize distortions to the economy, interfering as little as possible with the decisions of a free people in the marketplace.

Thoughts?   Add Comment -

NWconservative said on Mar 11 2010 at 1:55pm
Yep....them there sin taxes will take care of everything....which is why WA is going to start taxing bottled water! But here is another novel idea...fine all restaurants that use salt in their recipes all kinds of money. It's not a NWconservative original idea. A genius legislator in New York has proposed it...and may get a vote on it!

digger said on Apr 30 2010 at 9:03am
hit them their lawmakers right where it hurts. right in the coffee. thats right! all that bad caffeine and the sugar you might add and don't forget the cream.
theirs just nothin' like a little punk powder and sissy sauce to keep your jittery day rockin' and rollin'.
if your going to tax something you say is bad for you, then hit a broader spectrom of the population. even the hospitals can get into the act. they can charge, say, $25 a cup! Maybe that will solve the healthcare crisis. wake up and smell the coffee.