Have you ever heard the term “sin tax”? If so, do you know what a sin tax is? And if not, can you make a guess?
It isn’t a tax on the people who break the 10 commandments if that’s what you were thinking, although the origins of the name are based on these somewhat. No, the sin tax is the name for a regressive tax that is levied on items considered to be vices such as alcohol, tobacco and gambling. The tax is used not just as a way to increase government revenue, but also as a way to discourage citizens from partaking in them without making them illegal. These taxes can also be called a sumptuary tax, or one that is used to discourage those things that society considers undesirable.
The sin tax is often held out as an example of a regressive tax, that is one which is paid in greater proportion by those who are poor versus those who are wealthy. It is well researched and documented that those with the lowest incomes are more likely to use both alcohol and tobacco. Because their income is so low the percentage of tax they pay on these items is proportionately much greater than that paid by more wealthy folks. In the case of tobacco these lower income people pay an effective tax rate that is 583% higher than those in the top income brackets.
Support for Sin Tax
There are several arguments put forth to support the implementation of the sin tax. Among them:
- Because the items being taxed are considered immoral it is perfectly acceptable to raise their price through a tax and thus discourage their use.
- The use of products subject to sin taxes have been linked to unhealthy lifestyles and increased medical costs. By increasing the price through taxation we are encouraging a healthier population.
- most countries where sin taxes are used there is government funded health care. Some feel that it is only fair to tax those who use products that will contribute to health problems and dependence on this government funded health care. In effect the tax they are paying now is to cover the costs they will incur the government later.
Opposition for Sin Tax
- In some historical cases the sin tax has led to increased black market activities when the items become prohibitively expensive. It is suggested that already 25% of all cigarettes are sold on the black market.
- The fact that the sin taxes are regressive in nature has been used as an argument against them, stating that poor people pay a great proportion of their incomes as taxes on these products.
- There is no conclusive evidence that sin taxes actually work to decrease the use of those items being taxed. The aforementioned black market is one good example of how the sin tax can fail.
- Some claim that because the behavior being modified by the sin tax is strictly personal in nature the government has no right to attempt to change their citizen’s personal behavior.
What do you all think about the sin tax? Do you feel it is ok for our governments to proscribe certain products and activities by making them more expensive through the use of taxes? It is well known that sin taxes are a very good source of revenue for the government. In these days of budget deficits does it make sense to increase sin taxes? What about legalizing and taxing other products that would fall under the description of a sin tax such as illicit drugs and pornography? Some groups have even suggested we place a tax on white sugar and video games, citing their negative effects on the health and well being of our children. Would you support such measures?