Find Laws Find Lawyers Free Legal Forms USA State Laws
Home » Find Laws » Tax Laws » Local And State Taxation » Sin Taxes at a Glance

Sin Taxes at a Glance

Sin Taxes

A sin tax is a tax specifically levied on goods that generate negative externalities on society. They are forms of sumptuary taxes, aimed to regulate taboo goods such as cigarettes or alcohol. Common forms of goods that are subject to sin tax include:sugary soda, cigarettes, gambling, alcohol, and pornography.

The institution of sin taxes has benefited society and more specifically local jurisdictions in two distinct ways. Firstly, it curbs the use of goods that are thought to be deviant and detrimental on society. Secondly, it is a bona fide form of revenue for local governments or communities.

With the national economy in turmoil, many cities are crumbling due to high unemployment and abysmal housing markets. Cash-strapped areas constantly look for new ways to raise revenue so projects and public services can be properly funded. Local taxes such as property tax or income tax, fluctuate with the economy; when the values of property decrease, and people stop working the effectiveness of such taxes diminish.

Governors and legislators of struggling cities have viewed certain vices or environmental liabilities as lucrative tools to levy local taxes. A sin tax is an efficient form of taxation because the products in question have constant demand. Buyers of addictive goods like tobacco, gambling or alcohol rarely care about paying an extra five or ten cents on the product. Due to their inelastic demand local taxes on such products guarantee a stream of revenue for the state.

Besides money, these local taxes question morality and aim to curb the use of these criticized goods. Will a small percentage tax on cigarettes stop people from smoking altogether? Unlikely, but it will generate revenue for the state, and not expense people who choose to avoid such hazardous products. People who abstain from frowned upon activities will benefit from sin taxes; their local governments will get more money without paying an additional tax themselves. As society and technology advance, new negative externalities will become present, and more local taxes will be introduced in the form of a sin tax. Many states, struggling or not, have questioned implementing a sin tax for a multitude of products.

New York City has thought about adopting a sin tax for the purchase or use of plastic bags. Nevada has recently debated that local taxes for prostitution or strip club visits are justifiable. Every product in question has some form of negative externality placed on society. Sugary sodas spark obesity, paper bags are made from petroleum and are commonly littered, cigarettes greatly increase the chances of lung cancer, and prostitution can spread sexually transmitted diseases. A sin tax is a win/win situation for local governments. It brings in constant revenue and it also dissuades the use of immoral or detrimental goods.

Local taxes enforced on immoral goods benefit society from a health care prospective as well. Individuals who are avid smokers or drinkers are prone to sickness or developing diseases. On average, the medical costs for individuals who abuse such products is much higher than those who refrain. The sin tax in a way balances this disproportionate scale out. It places an extra cost on those who participate in such activities.
Although a sin tax seems like an ideal form of taxation, there are many drawbacks and criticisms for such legislation.

Goods subject to sin tax are more likely to establish illegal black markets or smuggling rings

A sin tax does not do nearly enough to dissuade individuals from purchasing such products. An avid cigarette smoker will rarely think about the added tax before purchasing a pack.

Proponents of the sin tax also feel that government should not intrude on an individuals desire to consume a product, regardless of the hazards imposed.

NEXT: State and Local Government Revenue Stream

Related Articles

Link To This Page


Find an Tax Lawyer
Find an NJ Lawyer
Guide to Finding a Lawyer