What are Sin Taxes?
Sin taxes are the levies imposed by governments all over the world on commodities like tobacco and alcohol which are generally perceived to be harmful to the health of people consuming them and the society in general. The behaviours that generate negative consequences immediately or in the long term like ill health and obesity are generally the targets of such sin taxes. The importance of sin taxes has been on a rise as banning these products is not considered to be feasible in the long run. Total ban on these commodities would drive their consumers to black markets rather than completely preventing them from consuming them. In the economic terms, sin taxes amount to the excise taxes that are chiefly designed with the intention of reducing certain kinds of behaviors that are thought to harm the society. Sin taxes are presumed to reduce the health care costs of drinkers and smokers as they prevent them getting addicted to them.
Past research has shown that certain communities in USA like Hispanics and African-Americans have reduced their consumption of harmful commodities than other wealthier communities due to their lower income levels. In certain countries like USA, sin taxes have played a varying role all through the country’s tax history. Some of the ‘sins’ which are being proposed by governments to be taxed include cigarettes, bullets, alcoholic beverages, and sugary sodas, fatty snacks, etc.
The first instance of a sin tax being imposed on the society to restrict certain behaviours was recorded in the year 1790, when one of the founding fathers of USA, Alexander Hamilton proposed a special excise duty on whiskey in order to refund revolutionary war debts. The recommendations made by Alexander Hamilton were based on the recommendations made by the economist Adam Smith in his book Wealth of Nations. Alexander Hamilton’s excise duty on whiskey had spawned a rebellion, which lead to the subsequent rescinding of the duty. However, selective taxes on commodities like tobacco and alcohol have never disappeared completely.
The history of 19th and 20th century is littered with examples where federal taxes were enacted on commodities considered to be harmful to the society during wartime emergencies and a majority of them being summarily repealed when the hostilities have ended. But the culture of imposing sin taxes on people have subsequently grown and being adopted by many countries around the world.
Even though sin taxes have now become common across many countries in the world, some critics argue that sin taxes do not give appropriate results all the time. The main criticism against sin taxes is that they are not effective in curbing the consumption of harmful commodities on which they are levied. Another criticism on sin taxes is that they are now being used by governments to fill up their treasuries rather than discouraging certain practices. According to these critics, sin taxes are highly regressive and make the poor people to pay for the governments’ mistake of not handling their finances properly.