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Economist Paul Samuelson was once asked to explain how sin taxes worked. He offered up the following commentary.
“Sin Taxes” are so called because they are levied on those commodities, such as tobacco and alcohol, which are the objects of widespread disapproval. “Such taxes,” Paul Samuelson says, “are often tolerated because most people–including many cigarette smokers and moderate drinkers–feel that there is something vaguely immoral about tobacco and alcohol. They think these ”sin taxes“ stun two birds with one stone: the state gets revenue, and vice is made more expensive.”
This is absolutely what has happened in New York since Barack Obama and Mayor Bloomberg have decided they would levy exorbitant sin taxes on tobacco products in New York City. Newsday.com describes the destructively regressive nature of the sin taxes on tobacco below.
A new study shows low-income smokers in New York State spend 25 percent of their income on cigarettes, a finding that led a smokers’ rights advocate to say it proves high taxes are regressive and ineffective. “The poor pay $600 million in cigarette taxes and get little help in quitting,” said Russ Sciandra of the American Cancer Society. He said state statistics show smokers earning less than $30,000 pay 39 percent of state and city taxes on cigarettes.
Mr. Sciandra hopefully won’t wilt from shock or surprise. Tobacco is an addictive product, causing the addicts to have an abnormally low price elasticity of demand. Once a consumer is addicted to the coffin nails; he hesitates to stop smoking them when the price goes up. You can tax them and tax them again and they don’t quit smoking. This is why advocates of legalizing other addictive substances such as THC will frequently advertise the advantages of potential tax revenues. It’s not like Cheech and Chong intend to drink Ginger Ale instead of lighting it up and then burning it down.
Let’s face it. Government doesn’t want the poor to quit smoking. They can’t pay for SCHIP without it. The possibility of levying sin taxes against addicted consumers that nobody has any sympathy for allows governments to get away with large-scale malfeasance. An example of this nearly occurred in my own state, Alabama.
Alabama had successfully failed to plan for its financial future. The legislature projected a shortfall of over $M400 that it needed to withdraw from the state’s oil and gas trust to bolster its general fund. They successfully passed a referendum and stole the money to avoid having to budget intelligently and raise taxes.
Of course the Alabama State Legislature would have acted out of cowardice in the event the referendum failed. Their immediate Plan B was a big hike in tobacco and alcohol taxes. If you can’t raid the trust fund, pick on the poor and the addicted. Progressive Democracy at its finest! Sucking money out of the pockets of the addicted makes formulating intelligent programs and budgets unnecessary.
In the use of sin taxes to make up for the infeasibility of Obamacare, the fecklessness of Alabama’s State Legislature and the power-lust of New York Mayor, Dominus et Deus Michael Bloomberg, we see how tyranny is installed upon the backs of the defenseless and the weak. The true sin of the sin tax is that enables government to gain power, perform less well and then pass the costs of its failure to under-informed and less powerful citizens.
The company selling cigarettes stays awash in cash. The government gets to exploit some of the poorest and least capable members of society. People make money from sin taxes – two outta’ three ain’t bad! Except that the 3rd person is the average citizen that gets the negative externalities from increased poverty, the continued addictive consumption and from over-empowered government. Sin taxes are a hallmark of growing government tyranny.