Acton Commentary

The Sin Tax Craze: Who's Next?


Hard-pressed state governors are increasingly turning to that venerable quick fix – the sin tax – to solve their budget problems. Smokers, drinkers and gamblers, the usual cast of politically dispossessed, are once again finding themselves in the bull’s eye for new taxes. In Michigan, a proposal from Governor Granholm would boost Michigan’s cigarette tax to $2 a pack, moving it to a position behind only New Jersey in per pack taxes. Texas Governor Rick Perry is advocating expansion of gambling, in addition to cigarette and alcohol tax hikes. He also is proposing a fee of $5 for every time a customer enters a topless bar.

But if there’s truth in the maxim that no one was ever scolded out of their sins, it is equally true that no one was taxed out of them, either. The temptation to impose sin taxes is one that should be resisted for economic and moral reasons.

Implicit in the government’s singling out of these activities is a moral judgment about their validity. People shouldn’t smoke or drink, so taxing them for doing so is not only within the rights of the state, but an act of responsible leadership. Nevermind the negative economic implications and the infringement on the rights of the individual person to make their own moral judgments.

Governments often find large public support for sin taxes because the majority of the populace does not engage in whatever activity is being taxed: they themselves aren’t affected by the tax, so why should they care? Philosopher Eric Voegelin points out a historical precedent for this ultimately self-centered attitude. In Germany in the 1930s, he observed that many Germans stayed quiet about the treatment of the Jews. “So here you have this pattern of social behavior,” Voegelin said. “As long as the neighbor gets it in the neck, we all happily join in, but as soon as our own turn comes then there is resistance.”

What is to stop the government from taxing other behaviors it happens to deem unhealthy? Once the state has moved in to tax “morally ambiguous” activities, it has crossed an invisible line putting it into the business of protecting its citizens from themselves. How long before there is a sin tax proposed for soda or fast food, both of which can contribute to obesity or heart disease? Gluttony, after all, is a deadly sin.

Interestingly, the state has a vested interest in people continuing this supposedly sinful behavior. Under a sin tax, the state finds itself in the peculiar and contradictory position of professing to discourage certain behaviors while relying on their continuance as a source of revenue.

Such attempts serve as provisional and stop-gap measures in addressing the budget deficits. Instead of formulating prudent policies that address real problems with the financing of state governments, sin tax gimmickry functions as a smokescreen which distracts the public from more fundamental fiscal issues.

Proposed increases on tobacco and liquor are more akin to a short-term painkiller than they are to a long-term cure. In addition, these sin taxes affect two oft-overlooked groups who merit greater recognition.

The poor are much more likely to spend a greater share of their disposable income on tobacco and alcohol than smokers and drinkers who are comparatively better off. So the poor, who are supposed to benefit from the increased funds, are the ones who are being asked to pay even though they can least afford it.

Restaurateurs and bar owners would also be negatively affected, just as they are beginning to feel the effects of an improving economy. The bar industries worry that raising taxes on liquor could result in layoffs, as proprietors are forced to make difficult decisions. A decrease in jobs is an unintended, but nonetheless real, consequence of such tax hikes.

One of the unintended consequences of sin taxes are the increased motivation for people to violate the law. Sin taxes exist as a halfway house to prohibition, and in the same way bootleggers used to smuggle liquor into the United States from Canada during from 1919 to 1933, smokers will face greater temptation to engage in black market activities.

The governors’ attempts to raise taxes on the poor and certain small businesses skirts the real problem of state budget deficits: the government’s addiction to spending. We must ask ourselves whether we want to charge politicians and bureaucrats with sanctioning sins in areas that are morally ambiguous. Or should this task be left to community, family, church, and tradition – social institutions that are often more trustworthy in determining the limits of non-violent behavior?

The great English historian Lord Acton summed it up nicely. “There are many things the government can't do – many good purposes it must renounce,” he said. “It must leave them to the enterprise of others.” The sin tax is a glaring example of what happens when governments fail to take account of their own inherent limitations, and attempt to be all things to all people.