Washington State Study: Legislators Shouldn’t Count on Sin Taxes for Balancing Budgets

The Washington (state) Policy Center has a new study (PDF) criticizing the effort in their state to balance the budget by increasing “sin” excise taxes on cigarettes, alcohol, and other items:

Policymakers are tempted to believe that sin taxes are an easy and seemingly limitless source for tax revenue. However, evidence from past years in Washington and around the country shows state lawmakers are mistaken in thinking they can tax targeted products at ever-increasing rates with no detrimental economic effects. When any tax gets too high, lawmakers will inevitably see a significant decline in expected tax collections, and a concomitant rise in tax avoidance strategies, including smuggling across state and international borders.

Finally, even if policymakers accept the idea of punitive taxation as a means of social engineering, it is not an effective way of raising more revenue on a consistent basis. Legislators cannot expect to accomplish both policy goals at once, because they conflict with one another. If citizens change their behavior and stop buying the “sin-related” product, tax revenues would drop to zero. If revenue rises as lawmakers expect, it means citizens are continuing to engage in their “sinful” ways and legislators have failed to advance their social goal.

Well said, and the report has quite a few well-researched examples. Check out the full report here.

More on excise taxes here.