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A Tax on ALL Sinners

Have you ever heard the term “sin tax”? If so, do you know what a sin tax is? And if not, can you make a guess?

It isn’t a tax on the people who break the 10 commandments if that’s what you were thinking, although the origins of the name are based on these somewhat. No, the sin tax is the name for a regressive tax that is levied on items considered to be vices such as alcohol, tobacco and gambling. The tax is used not just as a way to increase government revenue, but also as a way to discourage citizens from partaking in them without making them illegal. These taxes can also be called a sumptuary tax, or one that is used to discourage those things that society considers undesirable.

The sin tax is often held out as an example of a regressive tax, that is one which is paid in greater proportion by those who are poor versus those who are wealthy. It is well researched and documented that those with the lowest incomes are more likely to use both alcohol and tobacco. Because their income is so low the percentage of tax they pay on these items is proportionately much greater than that paid by more wealthy folks. In the case of tobacco these lower income people pay an effective tax rate that is 583% higher than those in the top income brackets.

Support for Sin Tax

There are several arguments put forth to support the implementation of the sin tax. Among them:

  • Because the items being taxed are considered immoral it is perfectly acceptable to raise their price through a tax and thus discourage their use.
  • The use of products subject to sin taxes have been linked to unhealthy lifestyles and increased medical costs. By increasing the price through taxation we are encouraging a healthier population.
  • most countries where sin taxes are used there is government funded health care. Some feel that it is only fair to tax those who use products that will contribute to health problems and dependence on this government funded health care. In effect the tax they are paying now is to cover the costs they will incur the government later.

Opposition for Sin Tax

  • In some historical cases the sin tax has led to increased black market activities when the items become prohibitively expensive. It is suggested that already 25% of all cigarettes are sold on the black market.
  • The fact that the sin taxes are regressive in nature has been used as an argument against them, stating that poor people pay a great proportion of their incomes as taxes on these products.
  • There is no conclusive evidence that sin taxes actually work to decrease the use of those items being taxed. The aforementioned black market is one good example of how the sin tax can fail.
  • Some claim that because the behavior being modified by the sin tax is strictly personal in nature the government has no right to attempt to change their citizen’s personal behavior.

What do you all think about the sin tax? Do you feel it is ok for our governments to proscribe certain products and activities by making them more expensive through the use of taxes? It is well known that sin taxes are a very good source of revenue for the government. In these days of budget deficits does it make sense to increase sin taxes? What about legalizing and taxing other products that would fall under the description of a sin tax such as illicit drugs and pornography? Some groups have even suggested we place a tax on white sugar and video games, citing their negative effects on the health and well being of our children. Would you support such measures?

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30 Responses to “A Tax on ALL Sinners”

  1. Andrew @ 101 Centavos says:

    Boo on sin taxes.
    A “sin” is something that is loosely defined by whoever is in power and writing laws.

    • Welcome Andrew! Yes I have to agree, those in power are the ones determining what the sins are. Somehow I think the revenues are more important to them than stopping people from a moral lapse.

  2. SB @ One Cent At A Time says:

    Somehow I tend to support sin tax. I like that cigarettes are costlier.

    • While I can agree from a standpoint that it “may” help peoples health, I don’t think that’s true. The fact that lower income people are more likely to spend their money on tobacco products (something like 500%+ more likely) makes this a very regressive tax that seems to be aimed at those with lower income.

  3. Joe Plemon says:

    I agree with Andrew that “sin” is loosely defined by whoever happens to be in power. But I have no illusions that our government cares one whit about morality and sin…it is all about money. Any discussion of legalizing prostitution so it could be taxed proves my point. This being said, I am not against “sin tax” because it is a tax of choice. No one is being forced to pay it if unless they choose to purchase the product.

    • If you’ve ever been a smoker you know how difficult it can be to reverse your decision to buy that particular product. And yes, it undoubtedly is all about money and also about pleasing the largest percentage of the voters possible. Most people do support sin taxes, so any politician willing to revoke them would become unpopular with his constituents.

  4. CultOfMoney says:

    I’ve always been a fan of the sin taxes, primarily for two reasons. The first, I don’t partake in many sins, so it really doesn’t effect me much. :) The second, and the one a bit more well defended, is that many of the “sin” products have externalities as they’re called in economics. These are all those costs that are not part of the price the user pays, and in fact may be inflicted on society in general. For example, a smoker pays for a pack, but those around them get second-hand smoke which impacts their lives. Alcohol invariably leads to some people driving while drunk, leading to crashes. So I think of it less as government prescribing what and what-not to do, and more trying to recognize the full costs of certain activities. Granted they may not be successful, but that is how I look at it.

    • It is true that many of the products with sin taxes levied against them do have strong externalities. However the true costs of many of these have not been proven and some people contend that they are negligible. Considering the harshness of DUI laws in most States and Provinces I would have to guess that any sin tax on alcohol at least has been an abysmal failure. In the end I have a problem any time the government tries to dictate the behavior of its citizens.

    • Andrew @ 101 Centavos says:

      How about a tax on fatties? Gluttony is one of the seven deadly sins.
      Economically speaking, it’s got lots of externalities.
      People want to keep on stuffing fruit pies and Ding Dongs down their pie-holes, clogging up the hospitals and their own arteries, they gotta pay. Dammit. :-)

      • Very good point Andrew, but one that I don’t think will gain a lot of traction with the voters.
        There was a motion in New York a while ago to put a tax on sodas and I think even on white sugar, but needless to say it got eaten alive. :)

  5. Invest It Wisely says:

    Even if you support the idea of reducing the consumption of “sin” goods via taxes, there is absolutely no justification for placing the power in the hands of a select few men to decide what is a sin, what isn’t, and to collect this tax to spend at their discretion.

    And this is coming from someone that abhors cigarettes and rarely drinks. 😉

    • I have to agree with you IIW. I don’t like the idea of the government dictating the behavior of its citizens one bit. And yet we continue to move further and further along that path in the West.

  6. Shilpan says:

    I really don’t like any kind of taxes. And, I think it is scary to allow government to decide what is good for the common people. With this concept, there is no end to what else our precious government can’t tax. :)

  7. Dollar D @ The Dollar Disciple says:

    I doubt that the sin tax actually deters that many people. I was a smoker once and I never thought to myself: “I should quit because this is expensive”

    • I still smoke and the rising price of cigarettes never deterred me one bit. Of course there are no taxes on cigarettes here in Thailand so a pack of brand name cigarettes (Marlboro) costs just $2.68 and a generic “brand” costs about $1.85. That should give you some idea of how heavily cigarettes are taxed in the U.S.

  8. Nick says:

    I’m a bit wishy washy with sintaxes… I’m not a big “tax” guy and just don’t know if the sintaxes accomplish anything. By the way, a pack of Marlboros costs $14.00 across the street from my work… crazy, right? That’s almost a buck a cigarette!

  9. MoneySmartGuides says:

    I find it ironic that the idea behind some of these taxes is to deter people from partaking in the item, yet the government relies on the money to balance the budget. What is it? Do you want to deter smoking or increase revenues? The cynic in me thanks that they know that raising the tax on cigarettes $1/pack won’t stop someone from smoking, so they raise the price because it’s an easy way to tax people.

    • It is almost certainly to raise revenues. It also looks good to the voters, most of whom support sin taxes.

    • Geoff says:

      But, in countries with a National Health Service where most health treatment is free (well paid by the government out of everyone’s taxes) the fact remains that smokers use a lot of the resources. So, if there were no cigarettes then although the tax revenues from tobacco would disappear, we wouldn’t have to spend some of the other tax we do get on healthcare for smokers.

  10. Geoff says:

    ‘Sin’ taxes are easy money for the governments. Having said that I’d be happy to see cigarettes increase in price 20 fold since I don’t smoke, and I don’t appreciate those who wish to share their tobacco fumes with me.

  11. Geoff says:

    I live in the UK, where things have greatly improved over the years I must admit. Smoking in bars and restaurants is banned, offices and shops too. But, it still doesn’t stop me having to breathe in someone else’s smoke when I might be walking along the street. Some parts of the UK are now even talking about banning smoking in cars where there are children inside, which I think is a good idea. It’s not right that kids should be forced to breathe in their parents’ smoke, it gives them a bad start in life.

  12. Matt @ RamblingFever Money says:

    If only the government(s) could figure out a way to tax actual “sin!” That would truly be a FAIR Tax… as nobody can escape the perils of sin.

  13. I Am 1 Percent says:

    I give people the free will to make their own choices, so I subscribe to the philosophy that none of these should have a “special” tax and I think that drugs and prostitution should be legalized. As you stated above, the illigalization of these activities creates a black market for these goods and services.

    • I’m with you in the free will camp. I don’t think the government needs to protect us from ourselves.

      Legalized and taxed? I’m sure that’s the route our government would take and considering the potential revenues they might even be able to balance the budget for a few years.

  14. Young Professional Finances says:

    I used to not really care that much about this – tax on cigarettes? Great, I hate them. Tax on alcohol and gambling? Why not?

    Then I read a post asking if we thought there should be a tax on sugar. That opened my eyes. If the government can tax sugar of all things, it’s a slippery slope – from there, who knows what else they would tax.

    So I changed my mind. This whole “sin”, “vice” or “things that are bad for you” is defined way too loosely. I don’t like this “sin tax” at all.

    • It is a very slippery slope and you have to ask yourself how much power should the government have over peoples lives? I’ve never been a fan of laws that are meant to protect us from ourselves…I can make that choice for myself thank you very much.

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