A sin tax is a kind of sumptuary tax: a tax specifically levied on certain generally socially proscribed goods and services, for example alcohol and tobacco, candies, soft drinks, fast foods, coffee, and gambling.
Sumptuary taxes are ostensibly used for reducing transactions involving something that society considers undesirable, and is thus a kind of sumptuary law. Sin tax is used for taxes on activities that are considered socially undesirable. Common targets of sumptuary taxes are alcohol and tobacco, gambling, and vehicles emitting excessive pollutants. Sumptuary tax on sugar and soft drinks has also been suggested; see soda tax. Some jurisdictions have also levied taxes on illegal drugs such as marijuana.
The revenue generated by sin taxes is sometimes used for special projects, but might also be used in the ordinary budget. American cities and counties have used them to pay for stadiums, while in Sweden the tax for gambling is used for helping people with gambling problems. Acceptance of sumptuary taxes may be greater than income tax or sales tax.
Proponents[who?] argue that the consumption of tobacco and alcohol, the behaviors associated with consumption, or both consumption and the behaviors of consumption, are immoral or "sinful", hence the label "sin tax". By raising the cost for certain products (here called immoral), they aim to encourage change upon peoples' behavior.
Tobacco and alcohol consumption has been linked to a variety of medical problems. In the United States alone, over 440,000 people die annually from smoking tobacco. By making the cost of unhealthy behavior prohibitive, they hope to produce a healthier society.
Following the medical argument, some argue[who?] that consumers of tobacco and alcohol cause a greater financial burden on society by forcing others to pay for medical treatment of conditions stemming from such consumption, especially in most first-world countries with government-funded healthcare, and should be taxed extra to pay for the costs of their treatment.
The moral, medical and financial arguments are occasionally considered in contemporary news settings.
Critics of sin tax argue[who?] that it is a regressive tax in nature and discriminates against the lower classes, since taxation of a product such as alcohol or cigarettes does not account for ability to pay, therefore poor people pay a greater amount of their income as tax.
Sin taxes are not normally value added in nature meaning that expensive, high-quality products more likely to be purchased by the wealthy will have the tax comprise a much smaller proportion of its final purchase price, thus ensuring that the lower classes pay a much greater proportion of their lower income in tax.
Sin taxes fail to affect consumers' behaviors in the way that tax proponents suggest, for instance increasing smokers' propensity to smoke high-tar, high-nicotine cigarettes when the per-pack price is raised and increasing the rate of people mixing their own drinks rather than buying pre-mix alcoholic spirits.
Critics[who?] also argue that the behavior affected by sin taxes are strictly personal and of no social consequence, and therefore should not be moderated by government.
Not all research supports the idea that alcohol and tobacco consumers financially burden societies through health expenditures. One study used a mathematical model to compare estimated health costs of obese persons, tobacco smokers, and "healthy-living people". Until age 56, obese persons had the highest estimated annual health expenditure. Tobacco smokers older than this had the highest estimated health costs of all groups, but since life expectancy is shorter for smokers and the obese, the "lifetime health expenditure was highest among healthy-living people." The model for this study used input parameters based on data from the Netherlands.
The government may become reliant on the revenue from the tax and has to encourage "sinful" behavior in order to maintain the revenue stream.
^"Detailed Response to Contradictions". Climate Action Now. Retrieved 30 April 2013. "When we rely on a sin tax for general revenues, we have a perverse incentive to maintain that revenue stream. It hurts government services when Canadians reduce their use of fossil fuels."