Magazine article New York Times Upfront

Do Sin Taxes Work? Slapping New Taxes on Tobacco, Alcohol, and Soda Is a Good Way for States to Raise Money. but Does It Change Behavior?

Magazine article New York Times Upfront

Do Sin Taxes Work? Slapping New Taxes on Tobacco, Alcohol, and Soda Is a Good Way for States to Raise Money. but Does It Change Behavior?

Article excerpt

You might soon be paying more for your Pepsi or Sprite. That's because two very different groups, for very different reasons, are pushing for soda taxes. Public health advocates, concerned about the impact of sugary drinks on the nation's obesity problem, want soda to be more expensive so you'll buy less of it.

And states, trying to close gaps in their budgets, are looking at all kinds of taxes, including "sin taxes"--taxes intended to discourage undesirable behaviors. Politicians have always liked sin taxes because, at least in theory, they not only raise money but also do a social good.

Since January 2009, 23 states have increased their tobacco taxes. Seven states last year either enacted new taxes on alcohol or raised existing ones. And 25 states have legalized new forms of gambling or considered doing so to increase tax revenues.

As for your soda, the District of Columbia in May approved a tax on soda and other drinks with added sugar. Colorado and Washington State approved taxes on soda and candy. Soda tax increases were also proposed in New York and Massachusetts but did not pass.

One reason politicians turn to sin taxes is that they often face less public opposition than other kinds of taxes.

"It is more politically attractive to tax these kinds of things" says Peter L. Faber, a tax lawyer in New York. "No one can get mad at you for taxing people who drink too much"

This isn't the first time lawmakers have turned to sin taxes during hard times to raise money. Many historians say the desire to boost tax revenue during the Great Depression through a tax on alcohol was part of the motivation in 1933 for repealing the 18th Amendment, which had established Prohibition in 1919 (see photo, above left).

Getting Creative

With the nation still trying to dig out from the depths of the worst economic slide since the Depression, some states are getting creative in their search for new revenue streams.

In Nevada, lawmakers have discussed expanding, and taxing, legalized prostitution. Texas, Georgia, and Pennsylvania have considered taxes for buyers of pornography and patrons of strip clubs and escort services. In California, advocates of marijuana legalization are pointing to the tax revenue that it would generate.

Economists doubt that sin taxes greatly affect the behavior of most Americans, especially when the amounts tacked on are quite small (as they usually are). …

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