Wednesday, July 07, 2004

Sin Taxes

An article by the Heartland Institute explains what's wrong with sin taxes. Some problems include:

It reduces the income of the buyer.

It lowers profits for the seller, and leads to reduced investment, wages, and jobs.

It is not likely to seriously discourage consumption habits when those habits are intensely desired.

It may eventually decrease government revenue, especially as people move their business to the informal sector.

It encourages people to turn to harder substances to feed their habits at the same price.

It creates underground markets, which tend toward corruption and violence, and fosters disrespect for the law.

It sets up a moral hazard for policy makers, who vacillate between wanting to discourage undesirable behavior and wanting to encourage it for revenue purposes.

The article also gives us an example of how consumers respond to high sin taxes. When Canada enacted cigarette taxes cigarettes that were manufactured in Canada, exported to the United States, then they were smuggled back (!) via the black market.