The Wages Of Sin…Sin Taxes, That Is

This is the conclusion to a very good paper and analysis of “sin” taxes by Christopher Snowdon of the Adam Smith Institute here in the UK. The full paper is here.

This paper has shown that sin taxes are not necessary for recouping lost revenue. On the contrary, the evidence shows that, if making consumers ‘pay their way’ was truly the aim of public policy, the government would be more justified in placing a saint tax on fruit and vegetables. Nor are sin taxes particularly effective at tackling sin or reducing harm. They are blunt tools are largely ignored by the target group and create a range of unintended consequences which damage health, stoke criminality and, beyond a certain point, lead to the government receiving less tax revenue.

It is possible that politicians, being unaware of these facts, endorse sin taxes with the purest of motives, but thirst for government revenue remains by far the most likely explanation for the enduring use of taxes on popular products. Neither complete prohibition nor an unhindered free market would offer anything like such riches. For politicians, the ideal sin tax is one that is too small to deter purchase, but large enough to generate billions of pounds under the cover of a well-publicised health campaign. At best, this constitutes a raid on disposable income. At worst, it exploits addiction and forces the poor to pay for the government’s mishandling of the public finances.

There can be no doubt that the costs of healthcare and social security will continue to soar as the population continues to age. It is predicted that one in three babies born in Britain today will live to celebrate their 100th birthday. This is a magnificent achievement, but such unprecedented longevity will make it difficult to maintain the welfare state as its architects envisaged in the post-war years.

Politicians around the world will have to face up to the financial challenges which will result from an ageing population, but it is perverse and unreasonable to compel those who are least likely to reach extreme old age to foot the bill. A politician who believes that sin taxes on ‘unhealthy’ products will reduce public expenditure is ignorant of the facts. A politician who knows that these products do not place a net burden on public services, but imposes sin taxes all the same, is cynical and opportunistic.

Furthermore, sin taxes breed criminality and contempt for the law. They sometimes give governments a financial incentive to foster the vice they profess to despise. They are tools of disingenuous paternalists and would-be prohibitionists. They are favoured by political cowards who dare not raise taxes openly and honestly. Their enduring popularity amongst the political class is summed up in the maxim of the American politician Russell B. Long who said, “Don’t tax me. Don’t tax thee. Tax that fellow behind the tree.”

Talk Amongst Yourselves:

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