Sin Tax to Help Pay for Health Care

August 25, 2009

A Los Angeles Times article brings back the debate over junk food taxes.

“Sin taxes” on cigarettes have turned out to be the most effective weapon in the campaign to reduce smoking.

Why not try it on Flamin’ Hot Cheetos, vanilla Coke and Twinkies?

…Junk-food taxes are often mentioned as a way to help fund a restructuring of the healthcare system, though no one in Congress has endorsed them.

There are two possible reasons for a government to expand their “sin tax” category to include high-calorie food and drink. First, they might want to decrease consumption of unhealthy goods. Second, they might want to raise more money.

But trying to do both is not very effective, for intuitive reasons. If tax rates are high enough to decrease consumption significantly, the state will have less to tax and will not raise as much revenue. Junk food isn’t like tobacco and alcohol—people are more sensitive to price changes in the former. If the tax rate is kept low enough to avoid discouraging consumption of the taxed item, then the tax fails to encourage healthy eating haits.

Funding an entitlement program, as the article above mentions, requires a steady source of revenue, so using a targeted tax is an especially bad idea.

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