In Praise of Sin Taxes for Cigarettes, Soda, Marijuana...

Federal and state governments are badly in need of revenue. And since their citizens have no money and hardly remember what a capital gain looks like, people are getting desperate for taxable goods. And by desperate, I mean creative. Is it time to tax prostitution yet? Yes it is, apparently.


Libertarian troublemaker Nick Gillespie recently wrote for the Times that we should legalize not only marijuana (an issue which is now creeping toward majority), but also nationwide gambling and prostitution. His argument is basic Econ 101: ending the "deadweight losses" generated by black markets and taxing formerly illegal products redirects formerly illicit money to government coffers, not to mention slashing the law enforcement costs of monitoring those activities. He does the math and finds that legalizing marijuana alone could net the government about $13 billion.

But for whatever reason, I'm feeling even giddier about sin taxes. I think we could also raise taxes on legal "sinful" products (cigarettes, soda, beer, etc) to further prime government revenue. I see the government is already considering this, having estimating that a mere 3 cent tax per 12-ounce serving of soda could generate $24 billion in four years. That's not going to pay for health care, but it's a not-insignificant amount money that seems to have addition social benefits.

Rev. Robert Sirico, writing for The American, totally disagrees. In his world, sin taxes represent the idea that "the government knows better than you do how to feed and raise your children." This is echoed by Susan Neely, president of the American Beverage Association, who moans: "Taxes are not going to teach our children how to have a healthy lifestyle."

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The idea that taxes have no right to reflect government values is crazy (why else would we give legal and financial bonuses to marriage?). Cigarettes already face steep state taxes precisely because those states value a smoke-free environment. Carbon taxes are advocated on the principle that companies aren't properly valuing the negative externality of pollution.

At best, sin taxes take stock of the negative health externalities of obviously toxic products. If Virginia raises its (currently very low) tobacco tax and earmarks the funds for health care, it's either doing one of two things: Discouraging cigaratte use or raising money to cure future emphysema cases. Whether the tax forces VA consumers to question their smoking or pay for its effect, it's still preferable to having the rest of the state pay more taxes for their failing health. At the end of the day, we might as well tax the things we're only going to have to pay for later.


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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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