When Will Legislators Learn That Sin Taxes Don’t Work?
In October, Philadelphia won the distinction of being the first major city in the United States to introduce a tax on sugary carbonated drinks. Proponents of the tax contend that it’s a wonderful way to bridle Philadelphians’ sugar cravings while simultaneously bolstering the city’s revenues. Across the Atlantic in Lithuania, legislators took the same approach with regard to alcohol and adopted legislation substantially increasing taxes on beer and wine. The intentions held by legislators who champion these sorts of taxes, often termed “sin taxes,” are generally admirable. However, the technical merits of taxes like these are lacking and, worse, they’re often liable for inadvertent harm.
A sin tax is a type of consumption tax added to products or services considered to be vices, such as alcohol, tobacco, gambling and nowadays—thanks to the conflation of bodily health with virtue—fatty and sugary foods. As a form of policy, the sin tax has the unique advantage of discouraging the consumption of a good or service without prohibiting it outright. In some instances, when demand for a good or service is relatively elastic and the tax is sensibly proportional to that demand, policymakers can realistically discourage consumption. However, more often than not, since demand for vices has a characteristic tendency to be viciously unshakeable and the information necessary for gauging what a sensible tax rate should be is hard to come by, sin taxes regularly end in failure.
For example, in England, playing cards were the subject of a sin tax starting in the 16th century. The rationale behind the policy was that it would make the prospect of gambling prohibitively expensive to the poor. Since enforcing anti-gambling laws at the time was nearly impossible given the limited resources of parish constables and magistrates, this feat of legislative innovation seemed sensible. However, by the early 18th century, thanks to a lack of funds precipitated by costly wars, the tax was raised by 2,300 percent. Understandably, forgeries of licensed playing cards abounded. When one of the lead forgers, Thomas Hill was arrested, he was found guilty and duly sentenced to death. It was a tragedy that epitomizes the sort of unforeseen consequences that sometimes result from ostensibly clever legislation. Unfortunately, lawmakers persist in introducing sin taxes, even though there’s little evidence to support their effectiveness––and plenty of evidence to the contrary.
In 2008, Australia introduced a tax of 70 percent on pre-mixed alcoholic drinks (“alcopops”), which was intended to provide funding for a new preventative health program aimed at tackling binge drinking among youth. Five years later, a University of Queensland analysis of 87,665 alcohol-related visits to hospital emergency rooms over the three years following the tax’s introduction found that the “increased tax on ‘alcopops’ was not associated with any reduction in hospital admissions for alcohol-related harms in Queensland 15-29 year-olds.” This was likely because, as data from the Australian Bureau of Statistics (ABS) suggests, drinkers started consuming pure spirits rather than alcopops. According to the ABS, while there was a commendable reduction in the consumption of alcopops in the three years following the tax’s introduction, consumption of much stronger pure spirits increased by about 20 percent.
Similarly, when Denmark introduced its novel “fat tax” in 2011, it was initially cheered as a laudable example of innovative public health policy. A mere fifteen months later when the unintended consequences became distastefully apparent, it was unceremoniously abandoned. According to a report published by the Institute of Economic Affairs, the effects of the tax were largely negative. Aside from spurring the loss of an estimated 1,300 jobs, about ten percent of the tax’s meager revenues were claimed by administrative costs. In most cases, Danes opted for cheaper brands to offset the cost of the tax or simply hopped over the border to Sweden or Germany to buy fatty foods. Only a disappointing seven percent of Danes reportedly reduced their consumption of affected goods.
If these recent examples of the implementation and failure of sin taxes demonstrate anything, it’s how depressingly little legislators seem to comprehend human behavior. “Men little think how immorally they act in rashly meddling with what they do not understand,” as the noted philosopher and statesman Edmund Burke once wrote. “Their delusive good intention is no sort of excuse for their presumption. They who truly mean well must be fearful of acting ill.” Burke is right; lawmakers should refrain from experimenting with historically unreliable legislative mechanisms like sin taxes lest they join the ranks of all those who’ve learned the hard way that good policy requires more than good intentions.
Michael Shindler is a Young Voices Advocate and writer living in Washington, DC. His work has appeared in publications including The American Conservative, The American Spectator, Washington Examiner, and CapX. Follow him on Twitter @MichaelShindler.