Sin Taxes Fail to Tackle Sin, Report Finds

WASHINGTON, D.C., February 20, 2013 - From alcohol to tobacco to sugary or caffeinated foods and beverages, price increases known as “sin taxes” that target politically incorrect products do little to limit their use and nothing to reduce alleged societal costs.  That's the finding of a newly published study, The Wages of Sin Taxes [3], by scholar Chris Snowdon.

Most remarkably, Snowdon, a fellow at the Adam Smith Institute in London, demonstrates that financial burden supposedly placed on society through the consumption of alcohol, tobacco, high-calorie foods, has little basis in reality. The myth that these “sinners” cost the rest of us money is perpetuated in large part because "government has no incentive to tell the public that these groups are being exploited, and the affected industries dare not advertise the savings that come from lives being cut short by excessive use of their products."  This type of tax is actually a regressive “stealth tax” that allows lawmakers to take money from their constituents with the lowest incomes without the pushback an upfront tax would provoke.

Certainly, many of those proposing price increases on so-called unhealthy products genuinely wish to improve the health of their fellow man and view these taxes as a means to that goal. Snowdon demonstrates that, regardless of their intended purpose, such taxes rarely produce the desired outcome many cases cause greater harm to those they are meant to help.

"Where most cost-of-sin studies merely examine the supposed costs drinking, smoking and eating fatty foods impose on society, The Wages of Sin Taxes takes a look at both costs and benefits to public finances," said Michelle Minton [2], CEI Fellow in Consumer Policy Studies.

"In fact, the vast majority of such costs are invented or are borne by the 'sinner' himself-not the public," said Minton.

From The Wages of Sin Taxes:

• “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.

> View the report, The Wages of Sin Taxes [3]