Does the Government Tax Us Into Good Behavior?

Don’t smoke, don’t drink, don’t eat fatty foods, don’t drink sugary sodas and don’t hire prostitutes, or you’ll pay. This is the message the ever increasing number of “sin taxes” sends to the American people. It seems like a fair compromise, paying a little more to indulge in “bad” behavior. It’s like a parent telling their child, “Well you can have some ice cream, but first you have to clean your room.” But are we really just children who need to be told how to behave by a wiser older government?

There is a financial motive for citizens to regulating healthy behavior. Increased health problems, especially among the poor and elderly, are passed on to the tax payer through Medicaid and Medicare. If Grandma was a smoker all her life and needs a new lung, it can cost the taxpayer. The solution proposed by people in this collectivist system is to either make Grandma pay more, or to not allow people to smoke in the first place. However, there is a large distinction between making a person pay higher health insurance premiums and making someone pay the government for the privilege of drinking Mountain Dew.

There are people who do not purchase private health insurance (for whatever reason) but receive health care nonetheless, at the expense of the taxpayer. Adding sin taxes is a way to nudge these people into a healthier lifestyle, or at least make them pay some of their share. However, taxes collected from these unhealthy behaviors do not go directly into Medicare or other health care costs.

There is another motive hiding in the sin tax, the motivation for a government to keep its people sinning. When sin tax revenue goes to the general fund, or is allocated to essential functions of government, the revenue becomes necessary. If people stop drinking, then the police stop getting their paychecks. So there is a direct incentive, once the sin tax is in place, for the government to promote the behavior. One proposed solution to this is to tie sin tax funds to specific functions. For example, a $1 cigarette tax recently proposed in California would tie revenues to cancer research and anti-tobacco programs. This approach has the potential to at least mitigate the problem.

Additional Resources

New American California Cigarette Tax: http://www.thenewamerican.com/usnews/politics/item/11608-tobacco-industry-spends-$47m-to-defeat-california-cigarette-tax

Food Navigator Sin Tax Debate: http://www.foodnavigator.com/Legislation/Sin-tax-debate-Make-the-healthy-choice-the-cheaper-choice

Accountingweb April 1 2009 sin tax: http://www.accountingweb.com/topic/tax/obamas-first-tax-increase-national-sin-tax-effective-april-1

Temple University Sin Taxes Study: http://www.temple.edu/law/tlawrev/content/issues/82.4/82.4_Haile.pdf

 

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