Sin taxes: Invasive and ineffective

Sin taxes have played roles of varying importance throughout US history, going all the way back to 1790, when Alexander Hamilton proposed the first excise tax on whiskey to pay off Revolutionary War debts.

That brought about the Whiskey Rebellion in Western Pennsylvania a few years later, in which President George Washington was forced to lead nearly 13,000 militia to quell the insurrection. 

Throughout much of US history, federal excise taxes have been predominantly enacted as wartime emergency measures, and the majority of the taxes were customarily repealed when hostilities ended, according to Richard Williams and Katelyn Christ of the Mercatus Center at George Mason University.

In a paper titled “Taxing Sin,” the pair write that arguments for imposing new excise taxes and increasing existing ones – on such items as cigarettes, alcoholic beverages, gasoline, bullets, and, more recently, sugary soft drinks and fatty snacks – have reemerged with bipartisan support and have spawned several myths about the efficacy of sin taxation.

“So-called sin taxes, even those passed with the best of intentions, have undesirable consequences because they contradict basic principles of economics, finance and, most importantly, free choice. In general, since proposals to tax lifestyle choices are concentrated on narrow consumer choices, they are rarely efficient,” Williams and Christ write.

They add that ”taxing sin usually does not end up significantly altering the ‘sinful’ behavior but rather rewards the very private organizations or politicians who have lobbied for the tax.” In addition, sin tax revenue is collected primarily at the expense of the poor.

One of the few things sin taxes are good for is triggering smuggling and black markets, especially when they create large price differences in neighboring areas.

Williams and Christ write that sin tax adherents strongly believe that most citizens are inherently incapable of making consumption decisions for themselves.

Carried to its logical extreme, “the notion that any product or lifestyle choice that even remotely contributes to health care costs should be taxed to help finance public spending would leave nothing untaxed.” Once it becomes “legitimate for government to protect individuals from their own follies,” there is no way to establish limits to governmental powers. As Nobel Prize winner James Buchanan pointed out, any attempt of a government to restrict private consumption choices with sin taxes is nothing but a “meddlesome preference.”

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