NOTE: This post will stay here until Sunday night. Posts for Saturday and Sunday morning go below this post.
Dear Aguanauts,
Discussion posts allow you to discuss a topic among yourselves -- exchanging views, learning and teaching. (I only read the comments.)
If you are interested, take a moment to check out (and add to!) the last week's discussion on Privacy and social networks. After that, please give us your thoughts on...
Paternal government -- should the government tax things that are "bad" for you (smoking, alcohol, gambling, fat) to stop you from using them? Would your answer change if you bore the ENTIRE cost of that activity?
Sunday, October 18
Weekend Discussion: Sin Taxes
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6 comments:
I think the largest benefit of a sin tax is, if used correctly, mitigating the social welfare losses and negative externalities of the activities (smoking and alcohol result in death and disease, which is a cost to society in opportunity costs and other factors like health care spending).
In theory, we can view the marginal cost of that last shot of vodka as ~ 1/30th of the cost of the bottle + the cost of the car damage, lives lost and emergency room bills spent on injuries. And since the economic value of a life (i.e., the value assigned to a lost life based on potential future earnings) exceeds millions of dollars, that's a pretty expensive shot of vodka. The idea is that, since most shots don't have those consequences, that taxing all of them will mitigate the social welfare losses.
Other sin taxes, like soda taxes and cigarette taxes, are just bureaucratic band-aids on bureaucratic mistakes. Why tax high fructose corn syrup and tobacco while simultaneously subsidizing their harvesting?
smoking, alcohol, gambling, fat result in increasing health care costs/bankruptcies so taxing helps paying for it.
If you believe in creating a market for some externalities - say greenhouse gasses, for example - then don't you have to support the commoditization of ALL externalities? If your answer is 'no', then the question of sin taxes is purely a question of political economy. The degree to which we need the revenue is the degree to which we will accept taxes on personal behavior. This country was founded on one concept above all others: individual liberty. Is that just another immature philosophical notion that, while suiting our needs at the time, will ultimately fall by the wayside over time?
The UK goes for sin taxes in a big way, but it is a double edged sword. The primary economic argument for sin taxing is that the increased cost will deter use, which is good news for people if the sin is a bad one (granted, everyone's view on a sin is different). A sub argument is that the taxes raised can be used to counter the externalities of ... Read Morethose sins, and in many cases such as the London congestion charge, cash is hypothecated into public transport. Unfortunately the tax man is also a business man and this is where the problems start. You see, the tax man realises one of man's greatest flaws, in that shock (such as suddenly being faced with the full external costs of our activities) will cause us to change our behaviour, but we ignore stealth (the environment is a classic example of this). This is why taxes on sins start with good intentions, then get gradually raised because the taxman realises he is on to a good thing. The government then relies on the money and before you know it, the taxes raised far outweigh the full economic costs of an activity. This, it might seem is unfair. However, there is another argument that there are lots of public goods which should face subsidy and something has to pay for this, so why not the 'bad' ones? I realise this is an argument not held by all and is one of the key political divides between Republicans and Democrats, the recent debate regarding healthcare in the US was a classic example of this, with Republicans taking the (in my view utterly obscene and barbaric) view that healthcare costs should be borne by the individual, with little or no paternal assistance from the government.
It is a fairly effective way to raise revenue, but the notion of public good is a crock. If the holy warriors were serious about that, ciggies would be taxed at $15 per pack and booze at $100/gallon. As it is, the states watch and clearly tailor these taxes so as not to reduce consumption (and hence revenue) unduly. At some point, the taxes are so high they encourage criminal competition, but the game is to get as much dough out of smokers/drinkers as possible. Kind of like the arithmetic a Japanese fisherman needs to do when figuring how many fish to let his cormorant eat.
Of course, these sin taxes are horribly regressive, and are at their core am excise tax on addiction and stupidity, just like the lottery.
Perverse Incentives! That's the big problem with "sin taxes" - they make government dependent on the sin business. More sin = more tax revenue, and what government doesn't want that? So now one part of the government wants to reduce cigarette smoking, and another part wants it to keep it up so they don't lose their funding. There must be a better way...
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