Sin has never been more popular, and its popularity is greatest among the government economists who never tire of figuring out how to make it pay. So far, the governments want to tax only the venial sins, the little ones, but the mortal sins that are most popular of all lie in wait as targets for later.
The latest rash of sin-taxing began in Mexico, when a 10 percent tax was imposed on New Year’s Day on all drinks sweetened with sugar, most prominently soda pop. The Republic of South Africa is raising taxes on cigarettes and alcoholic drinks, and the Australian Medical Association suggests that poker machines be taxed because they inflict something called “significant damage,” not defined, on poker players. This is perhaps the damage inflicted on the baby who needs shoes, when daddy spends the shoe money on poker machines.
More than 30 cities and states have attempted to tax soda pop, one of the treats that the poor can usually afford, through ballot initiatives. Every one of these initiatives has failed.
But it’s try, try again by the taxers. Rep. Rosa DeLauro of Connecticut, a Democrat, has introduced a bill in Congress to impose a 16-cent tax on every 20-ounce bottle of soda sold in America. This would be levied on the manufacturer to be passed on to the thirsty. This would be a national sales tax, though of course it isn’t called that, and could be a precedent for taxing everything else.
Such bad ideas are contagious. This week, the World Health Organization suggested that the United Nations should tax sin, too. The WHO wants to start with a 70 percent excise tax on all tobacco products sold worldwide. “Raising taxes on tobacco is the most effective way to reduce use and save lives,” says the head man at WHO. “Determined action on tobacco-tax policy hits the industry where it hurts.”
Picking on the poor is always popular with bureaucrats, because they can’t do much but submit. Nevertheless, the economist Arthur Laffer, in a new 400-page “Handbook of Tobacco Taxation,” observes that “one size does not fit all” in formulating tobacco-tax policy. Income levels must be taken into account to make sin taxes work. What works in Sweden and Germany won’t work in Senegal and Ghana. Taxes must be assessed to take that into account.
Sin-tax increases can push taxes past a tipping point and reduce government revenue. Not a single highly developed country, even Australia, Canada or Norway, which impose severe restrictions on tobacco, apply a 70 percent tax on tobacco, as WHO recommends.
Such a tax would more than double the average retail price of cigarettes in most countries, and drive smokers to the black market and do nothing for public health. One in 10 cigarettes now sold in the European Union is sold on the black market. By one estimate, $13.4 billion in sales is lost to the black market.
Tax bureaucrats always portray sin taxes as imposed to safeguard health, even when it’s clear that revenue is what drives government greed. Mr. Laffer tells Poland’s weekly magazine Do Rzeczy that “taxes for cigarettes and alcohol generally lost any economic sense a long time ago.” Even sin, though as popular as ever, has limits.