The U.S. government taxes a wide variety of economic activities but certain unhealthy activities or products sometimes face additional taxes. "Sin taxes" are taxes imposed on products or services that are viewed as unnecessary, detrimental to health or morally harmful. The two most common examples of products that face sin taxes are tobacco and alcohol. Sin taxes have several potential advantages and disadvantages.
Discouraging Harmful Behavior
One of the main purported benefits of sin taxes is that they tend to reduce harmful behaviors. For instance, tobacco use is associated with various health problems such as cancer and heart disease. Imposing high taxes on cigarettes reduces the amount of tobacco consumers can afford, which may in turn reduce the overall negative health impacts of smoking. Other activities with known negative health effects that are taxed include drinking alcohol and using tanning beds.
Increasing Tax Revenue
Another benefit of sin taxes is that they can provide additional tax revenue to the government bodies that impose them. According to the New York Times, 22 states increased their tobacco taxes between January 2009 and April 2010 to bring in more tax revenue. Certain states like California are considering legalizing marijuana as a way to bring in more sin tax revenue. According to Reuters, "the U.S. federal government collected $20.6 billion in taxes on alcohol, tobacco, firearms and ammunition in fiscal year 2009."
Sin taxes can potentially result in reduced economic activity which could reduce the amount of tax revenue they generate. If a gas station has to charge $1 more per pack of cigarettes, they will sell fewer cigarettes and make less profit overall as a result. This can hurt businesses that rely on the sale of products like alcohol and tobacco. If a consumer pays $100 a month due to sin taxes, that is $100 less that he can spend on other goods and services.
While discouraging harmful behavior is often cited as one of the aims of sin taxes, it is dubious whether sin taxes are actually effective at discouraging harmful behavior. According to the New York Times, "economists doubt that sin taxes greatly affect the behavior of most Americans." Products such as tobacco and soda are often viewed as basic necessities so consumers continue to buy them, despite incremental increases in cost due to taxes.
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.