Sin Taxes Essay

Sin taxes are controversial in the U.S., but governments have always relied on tortuous taxes on goods as a source of income. “Sinful” goods such as cigarettes or alcohol traditionally have a punitive tax, while there is current interest in even penalizing the purchase of fatty foods or sugary drinks – a step too far. Sin taxes equate to excise taxes mainly designed to inhibit certain behaviors deemed harmful to society, and have functioned with varied importance throughout history. Taxes on items such as cigarettes and alcohol usually have bipartisan appeal, and are likely to benefit the fiscal, social and physical health of the U.S. Therefore, sin taxes are necessary in a state to both deter unacceptable behaviors and financially benefit from those who still partake in those unacceptable behaviors.

Inspired by Adam Smith’s Wealth of Nations, Hamilton proposes the first excise tax on whiskey to help repay debts incurred by the Revolutionary War (Williams, Christ, 2009). This spawns a rebellion and results in the tax’s repeal – and immortality. Throughout history, wartime emergency measures were the main purpose of excise taxes and traditionally repealed when warfare ended. However, debates on imposing new “sin taxes,” while increasing existing ones, have revived in a bipartisan fashion. In addition, the Prohibition Era demonstrates how reducing alcohol consumption in a society can only come from higher prices, not forbidding it and driving it underground into the black market, where the state loses all financial benefit of the particular “sin.”

Usually, economists see sin tax as a negative impact on the supply and demand of the market – discouraging economic growth or profit by artificially raising the price of goods. However, ...

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...ome time, these types of taxes did not stay past their purpose, but have since made a comeback – not for wartime necessarily, but more for general revenue and promoted wellbeing. History shows how prohibition does not work, but sin taxes help balance the need to both deter from and gain added revenue from immoral activities. Eliminating or lessening the emergence of black markets requires a tough balance on keeping the added cost of a sin tax below the cost of an underground operation. Even though economic theory usually sees the downside of taxing a good, there is benefit in replenishing the costs associated with the negative externalities related to its use. Overall, there has to be a limit on what products receive the “sin tax,” while still benefitting financially and creating an atmosphere where harmful behaviors (mainly external) stay within a reasonable limit.