Saturday, March 9, 2013

The Hypocrisy of Sin Taxes


States heavily tax tobacco products. . . because they can.  

Everyone knows that tobacco use is harmful, which permits non-tobacco users to write off tobacco users as irresponsible and uneducated.  Cigarette smoke disturbs nearby non smokers, as does the sight of a snuff user spiting into a cup or on the sidewalk.  Smoke-free bars, restaurants and places of work now force smokers to stand out in the cold and rain, often "at least 100 feet from the closest building or sidewalk" to do their dirty deed. 

States can tax tobacco freely because smoking has become a dirty, frowned-upon habit in America.  And they can also tax it freely because they know that smokers will keep smoking regardless of price.  The demand for cigarettes is highly inelastic, meaning that price increases for cigarettes do not dramatically affect the demand.  So states know they can add another $0.25 or $0.50 per pack periodically and get the additional revenue they need, and tobacco manufacturers know that higher taxes on their products, while not ideal, will not really impact their sales much. No one loses but the user. . . the sinner who is being gouged by the sin tax.  

States rationalize these frequent tax increases by pointing to the damage that smoking does, both to the smoker and to those breathing second-hand smoke.  The fact that smoking is so obviously harmful gives politicians and voters the easy moral high ground every time they decide to levy another tax on cigarettes, as if they are really doing something good for those poor smokers by jacking up the price of cigarettes yet again.  They all sleep well after each tax increase, having convinced themselves that they have done this to help or incentivize smokers to make healthier choices.  It's not about the money, right?  Smokers needn't pay higher taxes; they could just quit smoking, right?  They could transition to a nicotine gum or one of those electronic cigarettes (e-cigs) that deliver nicotine without all of those harmful effects from tobacco, right?  Life is about choices, and smokers need to just smarten up and make better choices.  Right? 

Here's the kicker.  Now that e-cigs (which use no tobacco, produce no second hand smoke, and eschew the purported dozens of carcinogens found in tobacco) are becoming popular, states are realizing that they're missing out on a great new revenue source.  The states can't just let e-cigs be sold with only normal sales taxes affixed, can they?  Of course they can't.  States (starting with Utah) will, with increasing frequency, start going after e-cig sales and levy ever increasing taxes on those products.

The hypocrisy is just epic.  The states are addicted the sinful tobacco tax revenue like a three-pack-a-day smoker is addicted to his cigarettes.  The state's own tax increases are driving people away from cigarettes, endangering the tax revenue that the states gladly gobble up from this the sale of this horribly harmful product.

To be sure, the states will (always) package any new attempt at taxation so that it appears that they are once again simply doing what is best for the citizenry   But such attempts at spin are transparent these days, aren't they?  We're not that naive any more. 

It begs an interesting question.  If states could press a button and halt all tobacco sales forever. . . if tobacco use could miraculously be wiped out in one fell swoop, never to return and saving millions of lives in the process. . . would legislators choose to press that button?  Or are they so addicted to the revenue generated by tobacco sales that they secretly, desperately need people to keep smoking?  I think we all know the answer to that.  Again, we're not that naive any more.  

I think this exposes "sin taxes" like those on cigarettes for what they are: an easy way for politicians to extort money from people who have no choice but to accept it. And there will never be enough tax revenue generated to satisfy the state's addiction.