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U.S. government applying more ‘sin’ taxes to generate revenue

For decades now, the United States federal and state governments have instituted “sin” taxes on bad habits such as smoking, alcohol, soda, sex and even junk food. At first, the purpose of these taxes is to break bad habits but these funds eventually subsidize unrelated programs like the arts.

A new report titled “Sin Taxes: Size, Growth and Creation of the Sindustry” by the Mercatus Center, a free market research organization at George Mason University, looks at how much of these tax revenues generate tens of billions of dollars each year and are partly used to aid budget shortfalls.

Politicians find these bad behaviors as easy targets for taxation because those who purchase certain items, such as motor fuel, tobacco and alcohol, are still going to purchase them, even if they decrease the quantity of their purchase by very little. Also, since governments are cash-strapped and refrain from cutting spending, the federal and state governments are looking for easy revenue sources.

“Revenue-enhancers” can be found throughout U.S. history. Treasury Secretary Alexander Hamilton applied a tax on whiskey, which led to an uprising by western Pennsylvania corn farmers. Even President Franklin Delano Roosevelt, who ran on a campaign platform to repeal alcohol prohibition, announced he would tax and regulate alcohol.

“Owing to alcohol, tobacco, and gambling’s longstanding association with vice, taxes on these items are commonly referred to as ‘sin taxes,’” stated the report, authored by Adam J. Hoffer, assistant professor of economics at the University of Wisconsin-La Crosse. “While taxing items with presumed negative effects on public health, public morals, and the environment has a long history in traditional welfare economics, a growing number of consumer goods are now being added to the list of items singled out for selective sin taxation.”

Aside from being revenue generators, officials like to justify these taxes by arguing that they would reduce the costs that drinkers, gamblers and smokers inflict on others, including drunk driving accidents, second-hand smoke and families heading into the poor house because a chronic gambler bet the household paycheck.

The latest craze for public officials to tax is junk food. Recently, 33 states have imposed a soft drink tax. Chicago made national headlines when it implemented a nine percent sales tax on fountain soda drinks and a three percent sales tax on soda purchased in a bottle or a can. El Monte and Richmond cities in California debated whether or not to pass penny-per-ounce taxes on sugar-sweetened drinks, but the measures failed.

New York also captured significant attention of the general public when Mayor Michael Bloomberg installed a ban on large sodas. There was, however, a movement to add taxes on these sodas, but it failed time and time again.

U.S. News & World Report wrote an interesting conclusion to their report on this study. It ended by saying if you want to tax something then make three cases: claim the item in question causes ill or harm to the environment as a whole, experts know what’s better for consumers than the consumers do and make sure only the minority buys the product rather than the majority.

It isn’t just the U.S. conducting this type of policy. Economic Collapse News reported in October that the Ontario Medical Association (OMA) launched a new campaign that advocated taxes and warning labels on junk food, similar to the way tobacco is regulated. Queen’s Park is now mulling the idea.

The Danish government was the first to apply the world’s first fat tax. The Ministry of Tax put a tax on foods that contained more than 2.3 percent saturated fat and it also had plans to introduce a sugar tax. Because the policies failed miserably, the government abolished it.

“If taxes on ‘sins’ are justified because they plausibly generate negative health outcomes, then a tax could — and therefore should — be levied on all goods and activities that negatively affect human well-being,” the report added. “Where does the ‘should’ end? Why not impose taxes on all goods containing the wrong kinds of fat or cholesterol? What about excessive consumption of sodium? What about watching television, playing video games, or even reading a book? Those activities primarily are conducted while sitting down, staying indoors, and, hence, may impair one’s health. What about hang gliding, mountain climbing, or riding a motorcycle or bicycle, especially while not wearing a helmet?”

In Nobel laureate Milton Friedman’s “Free to Choose” book and television series, he looked at how Washington’s left hand didn’t know what the right hand was doing. He stated that there are many policies and institutions in the U.S. that contradict each other. For instance, one government building is spending taxpayers’ money to find ways to discourage Americans from smoking, while another government building is subsidizing farmers to grow more tobacco.

Indeed, the U.S. does not have a monolithic government, but rather departments, agencies and groups that have funded both sides of an issue.

Of course, politicians who support such measures will always outline the benefits, but never the unintended consequences of these decisions. Sin taxes lead to tens of millions of dollars in lobbying every year, low-income households are pushed deeper into poverty because some goods and services are taxed and, as mentioned at the beginning of this article, the revenue created from these schemes do not get transferred to what they were intended for.

“One of the things we ask, is what is sin? These things were chosen originally because they were sinful, and so now we’re applying these selective taxes on foods and things, so are we saying that they’re sinful as well?”

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