Report Documents, Critiques Growing ‘Sin’ Tax Industry

Report Documents, Critiques Growing ‘Sin’ Tax Industry
February 13, 2013

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

The NAACP and the Hispanic Federation went to court in January to block a ban on large sugared soft drinks that New York City is set to begin enforcing in March. They join the American Beverage Association in challenging the ban, arguing it would hit small and minority-owned businesses especially hard.

The authors of a new study from the Mercatus Center at George Mason University, “Sin Taxes: Size, Growth, and Creation of the Sindustry,” show how this detrimental practice has grown and what it means.

While New York City’s attempt to reduce soft drink consumption by limiting the size of soft drinks has garnered headlines, at least 33 states have special taxes on soft drinks that have a similar goal.

Such taxes fall into the “sin” tax category, but it’s tough to argue soft drink consumption is a sin. Many of the simple pleasures in life are targeted—a cold beer after work, a slice of bacon in the morning, or a hamburger at lunch.

Sin Taxes Hit Parking, Popsicles

Some other goods that have nothing to do with traditional “vices” like tobacco and alcohol are also taxed in the same way, including tires, baked goods, popsicles, playing cards, amusement parks, and parking. “Sin taxes” have come to include just about anything lawmakers deem unhealthy or undesirable—but in truth, many are just a new way to frame revenue increases, the authors contend.

The Mercatus Center study notes the sin tax practice has several dubious characteristics:

  • In many cases, revenue from the sin tax doesn’t go toward solving the problem it set out to fix, but instead enlarges a general fund.
  • Sin taxes are a lobbyist’s dream, leading to defensive lobbying and campaign expenditures by those targeted. They represent a huge opportunity for abuse by special interests.
  • The alleged goal of these taxes has shifted over time from correcting market failures to protecting consumers from their own choices.
  • Sin taxes cause the poor to suffer the most, because they have the least flexibility to change their buying habits, and cost increases make up a bigger portion of their budgets.

‘A Political Game’

The report notes, “The expansion of selective taxation of sin goods and other disfavored goods is built on a welfare economics argument, namely that penalizing buyers and thereby controlling a negative externality will help to limit the production of these public ‘bads.’ However, the methodology for singling out negative externalities for taxation ultimately is a political game. Producers that can resist higher taxes will invest resources in the attempt to do so. Low-income consumers, who have the fewest alternatives available to them, will shoulder the heaviest tax burdens, while others who have more consumption alternatives will get off comparatively lightly.”

Internet Info

“Sin Taxes: Size, Growth, and Creation of the Sindustry,” Mercatus Center: http://mercatus.org/publication/sin-taxes-size-growth-and-creation-sindustry

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)