Let's say you're the government, and there's an unhealthy, dangerous, costly and environmentally damaging behavior you want to discourage. Plus, you could use some revenue.
A handy solution: sin taxes. They're those benevolent or heavy-handed (depending on who you ask) revenue generators that want to change the world for the better.
Call them misguided or enlightened, but sin taxes are here to stay--because they are so darn effective. In fact, you probably already pay at least one.
What Merits Taxing?
Three things are likely to get a sin tax passed:
1. An obvious externality. This is the side effect of a behavior from health care costs imposed on governments and insurance companies by things like obesity, smoking and deaths from drunk driving accidents.
2. Demonstrable benefit. If possible, legislators and voters like to see that a tax decreases the undesirable behavior before implementing it.
3. Revenue for a good cause. To convince citizens that a brand-new tax merits taking their money, tell them how you'll spend it.
Here are some notable examples of taxes that have passed with flying colors, as well as taxes that have utterly failed.
Get started with a free financial assessment.
Get started with a free financial assessment.
Smoking costs the U.S. nearly $200 billion in health care costs and lost productivity each year. All 50 states have a cigarette tax, ranging from $0.17 per pack in Missouri to $4.35 in New York. Stacked on top of this are separate taxes from the federal government, as well as many cities (New York City has a $5.85 total tax) and even some counties.
It's also the most studied tax, providing us a glimpse into the benefits and unintended consequences of sin taxes. In 2009, the federal cigarette tax rose from $0.39 to $1.01 per pack, lifting cigarette prices by 22% overnight. The tax reduced the number of smokers by about 3 million from 2009 to 2012, according to surveys from the Centers for Disease Control and Prevention.
Unfortunately, the cigarette tax is regressive--it hits low-income people the hardest. Families earning less than $50,000 a year make up half the U.S. population, and two-thirds of smokers. In New York state, low-income smokers (earning under $30,000 a year) spend an astonishing 25% on average of their income on cigarettes. That's more than we recommend you spend on all Lifestyle Choices combined!
An easy fix to New York's (and most other states') low-income problem would be to use the tax revenue to provide free resources to help smokers quit. But like many states, New York funnels most of the tax revenue into the broader state budget. According to a report by the American Lung Association, 42 states, plus D.C., failed to invest even 50% of what is recommended by the CDC in proven prevention programs.
Alcohol taxes are de rigueur. As of September 2011, every state except New Hampshire taxes spirits--Washington state has the highest tax at $26.70 per gallon. States also levy lower taxes on beer and wine.
According to the CDC, alcohol abuse costs an estimated $224 billion a year. The immediate and visceral effects of alcohol abuse (drunk driving accidents, especially among teens) means that taxing is widely accepted--82% of adults favor an increase of five cents per drink in the tax on beer, wine and liquor to pay for underage drinking prevention and alcohol treatment programs, according to the Center for Science in the Public Interest.
Studies indicate that alcohol taxes can lower the costs of alcohol abuse by decreasing car crashes and fatalities, incidents of liver disease and violence. A 2012 report by the Center on Alcohol Marketing and Youth (CAMY) estimates that every $0.10 increase in the Maryland tax on an alcoholic drink would reduce alcohol consumption by 4.8%, and save $249 million in alcohol-related costs.
3. Junk Food and Soda
Both Denmark and Hungary have introduced a fat tax or junk food tax, and France taxes sweetened drinks. Is the U.S. close behind?
Obesity-related illnesses cost $147 billion to treat in 2008. Lab studies have found that junk food and sugary sodas produce addictive behavior in animals that's similar to cocaine. However, the externalities of sugary soda aren't as obvious as those of cigarettes and alcohol--there's no such thing as secondhand fat.
In a 2012 study, Oxford researchers recommended a 20% tax on sugary drinks, which they estimated would reduce obesity in adults by 3.5%. They chose to target sugary drinks because taxing junk food just prompts consumers to switch to another type of unhealthy food--as the Danes' tax demonstrated--but taxing sugary drinks prompts a switch to water.
But implementing a 20% tax will be a tough slog. While polls reveal U.S. support for taxing sweetened beverages at anywhere from 37% to 72%, former New York governor David Paterson's 2009 proposal to tax sugary drinks at 18% failed, and Philadelphia mayor Michael A. Nutter's proposal of two cents a drink fell flat. Twice.
4. Porn and Strip Clubs
When a Washington legislator proposed a state tax of 18.5% on porn, opposition was swift and fierce until he backed off. Another proposal by former New York Governor David Paterson to levy taxes on porn downloads (couched in a general tax on video downloads) blew up the internet for a day--and was never heard of again.
It's hard to demonstrate the negative externalities of porn. While partners of those with a porn addiction might suffer mentally, the state doesn't have to pick up the check for porn abuse or porn-related health problems. As for strip clubs, research has found only tenuous links between them and societal ills.
More importantly, porn qualifies as a first amendment right. You can't legally tax a porn magazine without taxing beauty and interest magazines--or tax porn websites without taxing news websites.
Those who want to tax stripping have had a bit more luck. Both Illinois and Texas have passed "pole" taxes targeting strip clubs. The revenue will be used to fund rape crisis centers in Illinois and sexual assault prevention programs in the Lone Star State.
A strip club owner in Texas and the Texas Entertainment Association sued the state attorney general and comptroller, saying the tax restricted free speech, but the Texas Supreme Court ruled that the fee was constitutional.
What Sin Is Next?
Society is rife with ills to be remedied. Supporters for legalizing marijuana often cite the tax revenue it would generate. And there's the carbon tax, which has had waxing and waning support over the past decade.
As we've seen, activists will have a much better time getting their carbon tax passed if they can demonstrate that a.) it would reduce carbon emissions b.) carbon is definitively causing externalities, like hurricanes and flooding, and c.) the revenue would go to an appropriate cause.
Maybe polar bear preservation?
Tell us: Which sin taxes do you support? Are there others you'd propose?