Derek is making some good points here about sin taxes, but wanted to add two notes about taxes on alcohol and taxes on sugary beverages, since the Senate Finance Committee is on the verge of trying to increase them. (Or, in the case of sugary beverages, introducing them for the first time.) If we're going to tax booze and soda, what's the best way to do it? And what will we have left to drink?
Matt Yglesias has two suggestions for improving the tax on alcohol that I think are interesting: First, why not index the tax to inflation? Most sin taxes are nominal fees per unit of sin, but the real-dollar value of those taxes erodes over time. Second, why not tax the alcoholic content of beverages, and not the specific beverage itself?
The first suggestion is really a hardy perennial of tax policy debates. Inflation-indexing saves you the trouble of updating the tax. But it also makes it harder to reduce the size of the federal government -- since you would have to actively change the tax, rather than passively let it erode -- or scrap the tax if it turns out to be bad policy. I don't think taxes on alcohol are bad policy, so the second concern doesn't keep me up at night. But the size of the federal government does. (Well, almost.)