There have always been and will always be some people who believe they know what is best for everyone, so they try to force their will on the rest of society.  This attitude is very much at odds withthe philosophy that liberty should be maximized and that people should be allowed to live their lives as they would like as long as they are not infringing on the rights of others.In recent years, the “we know best” crowd has expanded the number of activities that they believe need policing far beyond the traditional sins that have been targeted for decades and even centuries.

These consumer police are particularly fond of identifying products that they have decided are bad for people and/or society. The favored method of going after the offending product is through onerous levels of taxation.

Two primary arguments are used to justify efforts to either impose a new tax where none exists or increase an existing tax. First, the tax will discourage the use of the offending product so that individuals will live healthier lives and society will benefit. Second, the tax penalizes bad behavior but doesn’t tax the good people who abstain from using sinful products, so taxing these products also turns out to be a great source of revenue to pay for all sorts of wonderful government programs.

At the present time, the main sin tax targets of federal, state and local governments are alcohol and tobacco products.

Alcohol has always been a relatively easy product to target.The federal government and state and local governments impose excise taxes on alcoholic beverages, using varying tax rates based on whether the product is a distilled spirit, wine, or beer.  Also, the tax rates on the various products differ widely from state to state. For example, distilled alcohol taxes can be 350 percent higher in the highest taxing states than in the lowest taxing states.  Wine and beer tax rates have less variation, with rates in the highest taxing states as much as 30 times greater than the lowest taxing states.

The excise tax situation is similar for tobacco products. The federal, state, and local governmentsimpose excise taxes as well as varying rates of taxation based on whether the products are cigarettes, cigars, or a smokeless product, such as chewing tobacco.  The rates of taxation on tobacco also vary widely from state to state.

There has been a massive expansion of the sin tax targets.  At thefederal level, the Obama administrationproposed a tax on sweetened beverages in order to help pay for the Patient Protection and AffordableCare Act, although the tax was not enacted.  However, since the Congressional Budget Officedetermined that the proposal could raise $20 billion annually, it is certain to be revisited anytime anew program requires a new source of revenue.

Although few state and local governments have imposed selective excise taxes on sweetened beverages,candy, and so-called high-fat foods, such taxes have been proposed or are being actively consideredacross the country.

There have been frequent calls for some sort of tax on foods that are deemed to be high in fat content.  Also, a consortium of cities, states, and health organizations, led by the New York City, has announced an initiative aimed at encouraging food manufacturers to voluntarily reduce the amount of salt in processed foods.

This is likely only the first step in this particular consumer police crusade.  Inevitably, the consumer police willexpress dissatisfaction with either the reductions proposed by manufacturers or the speed withwhich the changes are being implemented and demand that excise taxes be imposed in order toaddress the “crisis.”

As is so often the case in consumer police campaigns, proponents of the new tax burdens rarely consider impact on consumer preferences, product standards, or the fact, for instance, that salt maybe a necessary component in the process of manufacturing many foods, such as cheese.

In 17 of the states where legislation seeking to penalize the use of certain consumer products was introduced in 2010, soft drinks or sweetened beverages have become the primary target for taxation beyond the traditional marks of alcohol and tobacco.  Candyseems to be number two, with legislation targeting it for taxation in 11 states.  In four states,snacks are in the crosshairs and caffeine is under attack in one state.

Three states, however, have legislation that would expand the reach of the consumer police beyond the wildest dreams of the most extreme authoritarian.  For example, legislation introduced in Massachusetts would modify the very definition of food under the sales tax exemption to include only whole grain cereals, fruits, vegetables, beans, nuts and seeds.  The legislation would specifically delete the existing exemption for soft drinks, candy and confectionery, in addition to all milk products, sugar and sugar products, herbs, spices and salt. 

Imposing new excise taxes or increasing existing excise taxes has not led to the benefits for society that have been predicted.  This has been demonstrated by the results of the numerous tobacco excise tax increases that have been enacted by the states in recent years.

Of the 57 excise tax increases that states implemented between 2003 and 2007, only 16 met or exceeded state revenue projections.  New Jersey’s 2007 cigarette excise tax increase not only failed to meet revenue projections, but resulted in a revenue loss of $22 million.  Similarly, in 2009, when Washington, D.C. enacted a cigarette excise tax increase, the result was a revenue loss of $7.6 million.

The state of Maryland enacted a $2.00 per pack cigarette excise tax that went into effect in 2008.   While the number of packs legally sold in Maryland dropped significantly between 2007 and 2009, cigarette sales increased in the neighboring states of Pennsylvania and West Virginia, both of which have lower tax rates.

Another underreported consequence of excise taxes is that they are highly regressive, disproportionately impacting lower-income consumers and those living on fixed incomes.  The regressive nature of excise taxes is accentuated if the taxed product is consumed disproportionately by the lower income portion of society.

Although the consumer police seem to have an inexhaustible list of targets they believe should be subject to a sin tax, seldom does the imposition of the tax accomplish its intended objective.In more cases than not, in fact, sin taxes do not produce the revenue that is projected.  And, while they disproportionately penalize the lower income population, they also encourage activities such as smuggling and counterfeiting to circumvent the tax, which produces new criminal members of society and new costs for the state.

It is time for policymakers, whether they are in federal, state or local governments, to just say no to more and higher sin taxes and to instead cut wasteful spending in order to address their fiscal woes.

  -- With David Williams