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How sin taxes can backfire

July 7, 2010 - Mike Maneval

An analytical post from Reihan Salam of the National Review's domestic policy blog, "The Agenda," looks at sin taxes, with both a nod toward an argument I've made in the past and a bold step further.

Salam quotes an assessment of carbon taxes in Europe by Monica Prasad for the New York Times in which she notes a sin tax "is a tax you want to impose but never collect." Like the windfall profits tax on oil companies proposed by Speaker Nancy Pelosi during the 2008 presidential campaign, or taxes on tobacco - the government collecting revenues from such taxes indicates first and foremost, respectively, pricing practices by the oil industry which drive up consumer costs detrimentally or increases or stagnation in the number of smokers. This is not to say tax codes can not effectively used to discourage undesired behavior; but that reliance on revenues from such features in the tax code - as was Pelosi's inclination in proposing the funding of home heating rebates for the elderly and low-income with windfall tax revenues and as states all too frequently do in committing tobacco tax revenues - leads to government dependence on a behavior the government is officially against.

Which leads to Salam's bold step: When the matter at hand is a more contentious or contested position, the "sin tax" can aid proponents of the criticized behavior. Salam calls upon an example from blogger Rod Adams, who looks at a proposal in Germany to tax atomic fuel rods. While many proponents of nuclear power are leery of the idea, Adams argues it may help neutralize opposition to the expansion of atomic energy, forcing opponents to explain how lost tax revenues will be offset if nuclear development is hindered. Or, for a hypothetical, if a state sees its cigarette tax revenues plummet and legislators' pet projects are jeopardized, how quickly will lifting the ban on smoking in bars and restaurants look like a plausible course of action?

 
 

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