In a recent interview with Harvard Business Review, Harvard Business School’s Mihir Desai and Bill George gave some great insight on inversions, who really pays the corporate tax, profit shifting, and corporate tax...
- The tyranny of taxing 'sin'
The tyranny of taxing 'sin'
Scrambling for revenue, politicians are pursuing higher taxes on junk food, alcohol, and tobacco - a clear threat to individual liberty.
Washington - Sin is big, at least in the minds of federal and state lawmakers. The US Senate is currently considering a soda tax to help pay for healthcare reform. In New York, Gov. David Paterson (D) wants a sin tax on non-diet sodas, and West Virginia Delegate Margaret Staggers (D) supports "a heckuva junk food tax." Nationwide, Democrats and Republicans have proposed higher taxes on alcohol and especially tobacco.
Such politicians are often called "nanny-staters" because they think the proper role of the state is to scold the people in the same way a nanny scolds children. Don't touch that chocolate!
But it's probably not politicians' love of scolding that keeps these tax hikes coming - it's their love of money. They want to spend more, and they'll take whoever's money is easiest to grab.
Sin taxes are easy to get enacted for several reasons, but the biggest is that each allegedly sinful product is consumed by a minority of the public. So it's the classic danger of democracy that Alexis de Tocqueville warned about two centuries ago: the tyranny of the majority.
Fleecing the minority is made much easier by an army of busybodies who make a comfortable living feeding "studies" to the media, proclaiming that Americans eat the wrong foods, drink the wrong beverages, don't exercise enough, and are generally sinful. These modern-day Carrie Nations' denunciations of nearly every commonplace pleasure - from Girl Scout Cookies to movie theater popcorn - are fodder for the nightly news.
To dispel the notion that their sin taxes go too far, the nanny-staters rely on a clever sleight-of-hand: Instead of pitching the tax as a punishment for sin, they claim they're merely compensating society for costs imposed by bad habits. These claims are often unsupported by science, but many media repeat them without question.
Take cigarettes. It's often asserted that smoking costs society more than $100 billion. Peer-reviewed studies from economists such as Vanderbilt University's Kip Viscusi and Willard Manning of the University of Chicago, however, demonstrate that nearly all of the costs of smoking - healthcare, higher insurance premiums, lower productivity at work - are borne by smokers themselves, not the larger society. Some experts even calculate that smoking yields net cost savings. Yet higher cigarette excises keep coming - exceeding $5 per pack in some locations - far more than could be justified as a corrective tax.
Even President Obama - a man known to have indulged an occasional smoke himself - couldn't resist the temptation to ally himself with the nannies and grab some cash to fund his pet programs. He has more than doubled the federal cigarette excise, breaking his campaign promise not to raise taxes on people making less than $250,000.
To maintain fairness, and protect minorities, society should rely on broad-based levies on income, property and sales. All who benefit from government services would pay for them.
Remember: one man's sin is often another's little piece of heaven on earth. Our ability to control the personal details of our lives is rare and precious. What a shame if the Statue of Liberty no longer held up a torch of liberty but instead a ruler to whack citizens across the knuckles when they reach for a treat.
Patrick Fleenor is chief economist of the Tax Foundation.
Hearing on Tobacco: Taxes Owed, Avoided, and Evaded
Before the U.S. Senate Committee on Finance
Chairman Wyden, Ranking Member Hatch, and members of the Committee:
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