Friday, June 26, 2009

Sin taxes vs impact taxes

Sin taxes have bothered me for a long time. Taxing a product or behavior because it is of questionable morality or unpopular has always struck me as a heavy-handed form of social engineering and an act of political cowardice - and highly regressive. Sin taxes usually come out more heavily on the poor, who spend a greater fraction of their income on alcohol, on cigarettes, etc.

But then, there's also a compelling reason for taxing many of these things that has nothing to do with holier-than-thou punish-the-poor reasoning. The fact of the matter is that the consumption of some things has a defined impact. Take driving. There's a "social" cost several times the cost of gasoline with average automobile mileage - dimes per mile.

Same with cigarettes and alcohol. There's a measurable cost associated with the health problems that come out of cigarette smoke, there's a social cost to alcohol, and in states/countries where prostitution is legal, that, too, has a social cost. And this sort of heavy-handed social engineering not only works to cut the vices they target, these specific and targeted taxes can fund the sort of programs that would compensate for the negative social impacts.

And not only that, but many of these taxes fall far short of the actual impact. Such as gasoline taxes, which in the best of times barely cover road maintenance.

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