The Sin Tax Backlash

Regular Hot Gas readers are already familiar with the various attempts at imposing sin taxes around the country on products like tobacco, alcohol and fast foods, as well as the dismal record of “success” such efforts frequently meet. But there is a new study out this month which is definitely worth your time to read. Chris Snowdon, a fellow at the Adam Smith Institute in London, has published The Wages of Sin Taxes, available at the link in a convenient to read or download format.

In it, he looks at the hard math behind common assumptions regarding lifestyle behavior and the effects things like smoking, drinking and eating rich foods have on the rest of society. What will come as a shock to some people is that increased taxes not only fail to curb such behavior, but wind up doing very little to benefit the rest of society at large, and largely serve as convenient revenue generators for bloated government entities at all levels.

A few excerpts:

“Sin taxes” are tax increases. Faced with his own budget deficit in 2009, President Barack Obama raised the federal cigarette tax by 156 percent,despite having promised a year earlier that, “no family making less than $250,000 a year will see any form of tax increase.” Largely as a result of the president’s U-turn, the federal government’s sin tax revenue—including tobacco, alcohol, guns,and ammunition—leapt from $14 billion in 2008 to over $20billion.

States and cities levy sin taxes, too. As the recession deepened, state governments raised taxes on gasoline, tobacco, soda and bottled water. Colorado started taxing candy, Texas introduced a tax on lap dancing clubs (the“pole tax”), and several states contemplated a tax on pornography (the “skin tax”). Phoenix, Arizona, levied a 2 percent tax on all food to help pay off the city’s $277 million debt. When the policy encountered opposition from citizens, politicians considered taxes on tattoo parlors, strip clubs, and escort agencies, instead.

People are fooled. A 2008 poll of New Yorkers found that 52 percent would support a soda tax,but this rose to 72 percent when told the money would be used for “obesity prevention.” In reality, it is rare for the spoils of a sin tax to be spent as intended. Typically, the money raised goes toward routine government projects and debt payments. Of the $25.3 billion the U.S. government collected from state tobacco taxes in 2011, for example, less than 2 percent was spent on smoking cessation.

Oft-cited statistics are wrong. The most commonly cited U.S. cost-of-smoking estimate is $193 billion per annum. This figure appears to have no foundation in the academic literature and the calculations on which it is based have never been published in a peer-reviewed journal. The only source for the figure is a page on the Centers for Disease Control and Prevention’s website dating from 2008. No details are provided except that $96.8 billion is attributed to lost productivity and $96 billion is attributed to medical costs. The dearth of information makes it impossible to ascertain what proportion of these costs are private.

A lot of that may already be common sense to conservative readers, but it should come as no surprise that these flawed assumptions are frequently the basis of thought for liberal opponents and the basis of legislation for elected leaders seeking a new cash flow scheme. But none of this is actually new information. Snowdon uncovers a beautiful quote from Austrian economist Ludwig Von Mises dating all the way back to 1927 which is worth sharing here.

If the majority of citizens is, in principle, conceded the right to impose its way of life upon a minority, it is impossible to stop at prohibitions against indulgence in alcohol, morphine,cocaine, and similar poisons. Why should not what is valid for these poisons be valid also for nicotine, caffeine, and the like? Why should not the state generally prescribe which foods maybe indulged in and which must be avoided because they are injurious?

We see that as soon as we surrender the principle that the state should not interfere in any questions touching on the individual’s mode of life, we end by regulating and restricting the latter down to the smallest detail. The personal freedom of the individual is abrogated. He becomes a slave of the community, bound to obey the dictates of the majority.

If you have some free time this weekend, I would suggest you take the time to read through The Wages of Sin Taxes. It contains a lot that you can keep in mind the next time your elected representatives bring up yet another tax hike to “save you from yourselves.”