Sin Taxes, Freedom of Choice, and Our Economy [UPDATED]

The guys at HillBuzz have a question: Do you support measures like “Soda Taxes” in cash-strapped cities raising revenue from unhealthy choices?

My answer is emphatically no, for four reasons:

1) It is a big government idea that restricts individual freedom of choice and discourages personal responsibility, which is the modus operandi of statist socialism.

2) It can be damaging to our economy, especially during a recession.

3) It encourages government to continue spending frivolously and beyond its means, then to pass the cost to the lowest income consumers in what amounts to a regressive tax.

4) There is evidence that, rather than raising revenue, sin taxes may actually have the (supposedly) intended effect of curbing the purchase of the unhealthy products in question. That’s all well and good, but it can lead to further budget shortfalls when government does not raise the projected revenue from the sin tax.

An in depth discussion of my reasons for opposing sin taxes beneath the fold…

First, on a philosophical level, sin taxes limit individual choice and discourage personal responsibility — which is the M.O. of statist socialism. It is very important for statist socialists, whenever possible, to implement policies in which government decides what’s best for the “common good.” This has the dual effect of depriving people of their freedom to choose for themselves, and of encouraging people to abandon all responsibility because, in the end, big government will be responsible for them.

Many Americans are peachy with sin taxes. What could be wrong with taxing people who buy cigarettes, alcohol, and nutritionally unhealthy products like soda? In fact, the argument has rather effectively been made that these consumers should pay higher taxes to pay for various forms of government-run health care (such as Medicaid and SCHIP) because these consumers will need more expensive health care themselves and, in the case of cigarette smoking, they may even be negatively contributing to overall public health. Sin taxes have thus become easy for government to levy.

The problem with this argument, on a philosophical level, is that it deprives people of the freedom to make their own choices and the corresponding responsibility to accept the consequences of those choices. Sin taxes are an insidious, creeping advancement of the socialist nanny state. They condition us to accept a government that restricts our freedom of choice and takes responsibility for us rather than encouraging us to take responsibility for ourselves. One could argue that sin taxes are the first wave of statist socialism, laying the groundwork for greater encroachments such as the monstrosity that has come to be known as “comprehensive health care reform.”

Moving beyond philosophical arguments, there are practical reasons to oppose sin taxes.

For starters, sin taxation is simply bad public policy during a period of severe economic recession such as the one we are currently experiencing. Many Americans don’t consider this factor, because politicians have so convinced us that businesses — and especially corporations — are the trolls, the ogres, the giant corporate monsters standing in the way of “progress” as liberals define it. The most extreme liberal rhetoric even depicts corporations as murderers.

The inconvenient truth for liberals, and for those duped by them, is that corporations also provide jobs and contribute to the growth of our economy. How many jobs does Philip Morris provide to Americans? How much does Coca-Cola contribute to our GDP and GNP? Think about that for a minute. If the supposed goal of sin taxation is realized, these companies that provide jobs and contribute to the growth of our economy will lose revenue as consumers cease to buy their products. Loss of revenue could lead to job cuts, a smaller contribution to the domestic economy, or both.

This problem is magnified now that we find ourselves in a recession. If liberals really want to stimulate the economy, how can they justify public policy like sin taxes that pursue the stated goal of costing corporations that provide jobs and contribute to the growth of our economy revenue? That doesn’t stimulate the economy. Worst case scenario, that kind of public policy could lead us even deeper into recession.

And then there is the impact that sin taxes have upon consumers, which is to say everyday Americans. Liberals claim to stand up for “the little guy,” to be watching out for those with the lowest incomes. That’s the whole idea behind progressive taxation, in which those with higher incomes pay a higher tax rate.

The problem for liberals who support sin taxation is that most of the products involved (tobacco, alcohol, soda, etc.) are purchased overwhelmingly by those with lower incomes. That means that sin taxation actually amounts to a regressive tax, meaning that it is disproportionately paid by those with lower incomes rather than those with higher incomes — or, in the parlance of the Marxists that President Obama associates himself with, sin taxes are paid overwhelmingly by the proletariat rather than by the bourgeosie. That should violate Socialism 101, which makes you wonder why sin taxation is consistently pushed by liberals who espouse some degree of socialism.

The final practical argument to be made against sin taxation is that it doesn’t work (or, depending on your perspective, that it works too well). There are two stated goals of sin taxation that are at odds with each other. The first is to raise revenue for government. But the second, supposedly, is to curb unhealthy behavior. In other words, government wants to stop consumers from engaging in unhealthy behavior — smoking, drinking alcohol, drinking soda, etc. — by making such behavior more costly. But wait, in order to raise revenue, doesn’t government need consumers to continue the unhealthy behavior that is being taxed?

Somebody, somewhere, is either deeply stupid or is being disingenuous. Government needs consumers to keep buying these unhealthy products to raise revenue, but says that it is levying sin taxes precisely to stop consumers from engaging in the very unhealthy behaviors they must continue in order to raise revenue for government. Either government doesn’t really want to raise revenue and actually wants Americans to be healthier, or government doesn’t really care about making Americans healthier and actually just wants to raise revenue.

Or, I suppose there’s a third option. Maybe government doesn’t really care about raising revenue or making Americans healthier. In many cases, sin taxes are imposed as a desperate measure to make up for budget shortfalls. Implementing a sin tax gives the appearance of dealing with the problem and balancing a budget. Call me a cynic, but isn’t that what really matters to our politicians these days? Who cares if sin taxes actually balance budgets, as long as they appear to do so? Then, when it is revealed later (read: after elections) that the sin taxes didn’t work, well, those same politicians will just propose more taxes.

The point is that sin taxes can’t possibly meet both of their stated goals. Consumers can’t stop buying these products and still raise money for government. The reasoning behind sin taxation is internally inconsistent. Either consumers will keep buying these products and raise revenue for government, or they will stop buying these products and government will not raise the revenue that it has projected will be raised. So when politicians tell you they have to implement sin taxes because government needs the revenue and, besides, it will be good for you — caveat emptor, dear reader, because you are being sold something tantamount to a bridge in Brooklyn.

The bottom line here is that the only real solution for budget shortfalls — whether we’re talking federal, state, or local government — is for government to spend within its means, which means spending significantly less. At the local and state levels, this means that state and local governments need to spend within their means. But we shouldn’t lay the blame entirely upon these governments. The federal government also needs to stop passing costs onto state and local governments through unfunded mandates. In the short term, the most serious unfunded mandate facing states at the moment is the massive cost explosion that will result from ObamaCare, including but certainly not limited to the expansion of Medicaid.

It is very obvious that the federal government is facing a budget crisis and that our politicians, rather than attempting to solve the problem, are only making things worse. In some cases, they are also making things worse for helpless state and local governments, while in other cases state and local governments are making things worse for themselves.

Something has to be done, but that something isn’t sin taxation. Practically speaking, sin taxes could damage our economy, will disproportionately affect the lowest income Americans, and are unreliable for raising revenue in any case. From a philosophical perspective, sin taxation is a stealth maneuver to lay the groundwork for greater advancements by statist socialism. For conservatives, libertarians, independents, and even old school liberals who care about the growth of our free market economy, sin taxation is not the answer. If government wants to get serious about balancing budgets, the only answer is to drastically reduce spending.

UPDATE: Here’s a relevant bit of news, courtesy of West Coast Outpost. Apparently on Sunday the Washington State Senate passed an $890 million package of tax increases — including a full $1 increase in the cigarette tax. Increases in sin taxes are happening all across the country right now, so there’s no question that we need to have a debate about the merits (or lack thereof) of this kind of taxation.

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  • Russ  On March 9, 2010 at 7:30 pm

    That’s a great post N.

  • snore  On March 15, 2010 at 11:40 am

    Here is a epic FAIL link to a commercial by the Soda Ad Council. They show a super market in the Bronx that will be effected by the new tax, but look at all the crap that this woman is buying with her soda! this needs to be about nutrition education and not a penny per bottle on sugar water

  • Alfonse Battistelli  On April 20, 2010 at 1:46 am

    Pretty powerful and convincing.

  • Jennifer  On December 1, 2010 at 9:28 pm

    So by selling diabetes and lung cancer to the people of the World you commend these large corporations for creating jobs and growing our economy? There are many better things we could be doing to create jobs rather than making cigarettes and soda.

  • Garen  On March 7, 2011 at 3:34 pm

    You make a few valid points in an argument with many holes in it..

    1) Many “American” corporations do not contribute as much to the GDP as you say, as much of the work is done outside the USA itself. This hurts this working class you’re defending right now, as they lose manufacturing jobs to other countries.

    2) Also,you’re right that the idea of a sin tax may not necessarily be a great idea now, during recession, however once you are out of it, especially if a public health care system does get put in place, it would work (especially for items such as cigarettes).

    While many of these items are in fact consumed more frequently by the working class, I think you miss the point that this could also encourage these very same people to stop smoking and if it doesn’t then they’re bloody insane

    • OSSIE  On December 7, 2011 at 10:27 pm

      Isn’t the GDP only for USA. So that if it is made here that is added to the GDP, and if it is made that country it is added to there country.

  • OSSIE  On December 7, 2011 at 10:29 pm

    I didn’t explain correctly. If it is made in the us it is added in the use. even if it is from another company out of the country. and if it is made out of the country such as japan it is added to japan’s GDP

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