Taxing the Vices of the Poor (and the rest of us)

Gambling, Alcohol and Tobacco are all subject to “sin” taxes. We may as well add gasoline to the mix, too. According to the The National Center for Policy Analysis, all of ’em hit the poor hardest (h/t). Here’s a distillation of the Executive Summary of their report.

  • “The dollar amount spent on the lottery by the lowest-income individuals (earning less than $10,000 annually) is twice as much as the highest earners (earning more than $100,000 annually).”
  • “One-third of lower-income adults smoke versus one-fifth of middle- and high-income earners, according to the Centers for Disease Control and Prevention”
  • “…major tobacco companies…pay the states $200 billion over 25 years to compensate for state health care costs attributed to smoking. More than 90 percent of the settlement costs are passed on to consumers. In fact, the settlement raised the price of cigarettes about 45 cents per pack.”
  • “The portion of income spent on alcoholic beverages by the lowest fifth of earners is double that of middle earners and more than three times that of the highest earners, on the average.”
  • “Some advocates claim taxes on harmful behaviors…are justified to recoup the costs those activities impose on others, such as secondhand smoke and drunk driving. Although the evidence is mixed, it appears that taxes on tobacco already more than compensate for the social costs of smoking.
  • “Advocates also claim these taxes encourage people to change their behaviors in socially desirable ways….the evidence indicates that these taxes are designed to raise revenue, rather than discourage unhealthy behavior.”
  • “Poorer taxpayers are also disproportionately burdened by excise taxes imposed on ‘necessities,’ such as gasoline, utilities and telephone services. Since lower-income households spend more of their incomes on these items, they pay a greater share of these taxes.”
  • “The lowest fifth of income earners spend nearly one-third of their income on alcohol, tobacco, utilities and gasoline, on the average. By contrast, the highest earners spend just 6 percent of their income on these items. Thus taxes on these products are especially burdensome to the poor.”
  • These statistics confirm a couple things. First, many people are opposed to a consumption-tax as a possible replacement to an income tax because it will hit those on the bottom of the income ladder hardest (I agree). They also help expose the underlying cynicism of our national and state governments who pay lip service to discouraging these vices while at the same time relying on them for their lifeblood. In the case of gambling (lottery or “casinos”) they outright encourage vice. But the answer isn’t a more “progressive” income tax (tax the rich more!). Instead, it is to reduce the amount of government spending. (Realistically, that means reigning in the rate of growth of spending). Until then, the message will continue to be “Smoke, drink and be merry so we can fund programs to help you…maybe.”

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    Joe
    Joe
    14 years ago

    The Lottery is just a tax on people who cannot do math.

    Justin Katz
    14 years ago

    Interesting. If we’re talking taxes on ill-considered behaviors, perhaps Rhode Island should consider an extra tax for citizens who vote for Democrats. In all fairness, it seems that the majority of them benefit financially from doing so.

    Jordan
    14 years ago

    I don’t know if it’s any reflection of the first two comments, but Rhode Islanders also spend disproportionate amounts on the lottery, almost double the national average per capita.
    Here’s a piece I did on it in the Projo a few years back:
    http://www.acton.org/press/pdf/2003-12-24_Ballor.pdf

    Nick C
    Nick C
    14 years ago

    A tax on accumulated assets has always been the only fair option for a society that wants to discourage accumulated wealth. Taxes should be seen as disincentives, just as subsidies should be seen as incentives or encouragement. If we want to encourage people to make more money from their jobs, we should stop taxing income. Likewise, if as a society we decide that massive consumption is harmful, we should penalize it with taxes on luxury items and excise penalties.
    I’m a smoker, and to be perfectly honest, I’d rather not be one. If Camels cost $14.00 tomorrow, I’d stop buying them, but at $5.75 or $6.00 I can buy them with spare change I keep in my truck. I don’t think I can honestly say I disagree with taxing vice.
    But the point is moot anyway since the wealthy pay ~90% of all taxes anyway. I make $18 grand a year and take home at least $1000 in fed/state refunds each year so I really can’t complain too much.

    free
    free
    14 years ago

    Justin,you’re a riot! LOL! I’m laughing with the truth of it.

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