Sin Taxes, or How to Raise Revenue Part I

Even those who subscribe wholeheartedly to Keynesian counter-cyclical government spending get a bit squeamish when it comes time for the government to actually, you know, spend. And there’s a reason for that. Federal programs, no matter how good of an idea they are at the time, rarely die off after their original mandate has run out.

Case in point: the Agriculture Adjustment Act. It was originally created during the New Deal to help control oversupply in the cotton market by literally paying farmers not to grow cotton (and other commodities) on their land. Well, mission accomplished. But farmers still see subsidies from this program (now the Agriculture Adjustment Agency), and, of course, even when it was needed, it went disproportionately to big landowners rather than the small farmers who needed it most. (That isn’t to say that the Agriculture Adjustment Agency doesn’t do useful things now, but the bottom line is, it’s awfully hard to take away a subsidy that may no longer be justified.)

When removing some of these New Deal era subsidies gets discussed, farmers, rightly, point out that without the subsidy, the drop in revenue will merely get passed on to the consumer. It’s self-perpetuating.

Now, we know that the Obama administration is going to start a lot of programs, and we know that they’re going to cost a lot. So, other than cutting costs in other areas (which, frankly, isn’t going to offset new spending no matter how often Obama says he’s going through the budget “line by line”) how is the government to pay for this?

One idea that doesn’t get near enough discussion in American politics is vice taxes. This is traditionally thought of as a morality tax, such as those that exist on gambling, cigarettes or alcohol. And this is the common argument for legalizing marijuana use or prostitution — they happen anyway, so regulate them, tax them, and use the money for treatment or education.

Robert Frank has a series of posts up at, advocating a slightly different take on sin taxes. In one, he argues that A. there are a ton of shovel-ready projects that will give us high bang for our buck, so B. we should spend, even though C. there a ton of wasteful programs that D. we probably won’t be able to shut down given the state of governmental politics.

If you agree with all of that, (or even if you don’t, because Obama’s gonna do it all anyway) then we have to find a way to raise revenue to combat the deficit.

Enter Frank with his sin tax proposition:

The prospect of new taxes is never pleasant, of course. But if tax we must, why not kill two birds with one stone by taxing activities that cause harm to others? By eliminating waste, such taxes actually make the economy more productive.

The best example he gives is that of a congestion tax. Here were the effects of one in London:

After a daily fee of $14 was imposed on cars entering central London in February 2003, downtown traffic fell by a third and travel times on some bus lines fell by half. Londoners also saw carbon dioxide emissions fall by 20 percent, and there were substantial declines as well in emissions of particulates and nitrogen oxides, the main components of smog. The combined dollar value of those benefits was far more than enough to offset the total hardships associated with the congestion fee.

The benefits are tough to monetize, but if carbon reductions and lighter traffic were the goals, then the tax should be deemed a success. The problem with such taxes, Frank notes, is that it makes it so that rich people can drive to the city and the poor can’t. This complaint is part of what derailed the effort to impose such a tax in Manhattan recently, though Frank argues that congestion vouchers or tax refunds could help offset the new costs.

Now, obviously such a tax doesn’t do much for the federal deficit, because it’s aimed at preventing a localized behavior. In fact, most vice taxes are like this, but there are those that would help. Gun or ammunition taxes come to mind as options, though not particularly politically viable ones. (Can you imagine the backlash from the NRA?)

And then there’s carbon and gasoline taxes.

…which I will discuss in another post.


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About the Author

Brian Eason is a University of Missouri graduate with bachelor degrees in Journalism and Political Science. He has covered Congressional elections and local government for the Columbia Missourian and worked as a general assignment reporter for the State Journal-Register in Springfield, IL. Brian has also had articles published in Roll Call.

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