Sin Taxes

[tinyj316]

So, I got to thinking the other day about the use of sin taxes to help the poor (health care, welfare, food programs, etc.), and I had an epiphany of sorts...

Sin taxes don't really help the poor. Take the taxes on tobacco for example. How many poor people do you see that are addicted to smoking? Out of 10, what would you guess that number to be at? 7? 8? lower? Now how many "rich" people do you see that are addicted to smoking? 2? 3? higher?

What I'm trying to get at is, the people who can afford the taxation are the ones who set the taxes, and are able to get the help necessary to quit (be it alcohol, tobacco, fast food, etc.) while the poor can't afford the help, and as a result continue to use those items, only at a higher cost to them.

Sure, the programs are designed to help them, but not all of them qualify for the programs, and thus the cycle continues.

I don't know how coherent my statements are, but I'm sure at least one of you will pick the ball up and run with it...

[fcbayern]

I believe all taxes harm the poor in the long run..

[arhutch]

I believe all taxes harm the poor in the long run..

not necessarily

rich people only get around taxes only because the know the loop holes. how to hide their money in corporations and trusts that are untaxed, and they bank off of it. if more people knew more about tax law, among other things, the more money they could save IMO.

[Rani]

I believe all taxes harm the poor in the long run..

not necessarily

rich people only get around taxes only because the know the loop holes. how to hide their money in corporations and trusts that are untaxed, and they bank off of it. if more people knew more about tax law, among other things, the more money they could save IMO.

This is true. If you call the IRS they will actually help you avoid taxes. Tax evasion is a crime however, tax avoidance is considered a good thing. They actually want your money out there in circulation. Sounds strange that the IRS would be on our side, but actually they are. They will not give you tax advice, but they will tell you what is legal and will work in your interest.

'Rani

[Sonthert]

Until George Bush got in there (I don't know what it is now), prior to Bush, the tax burden on the lower, middle and upper classes was fairly equal, around 35%, with the middle class being hit slightly harder. Some taxes are regressive, some are progressive, when they are all totaled up presumably, they would be about equal or bigger for the wealthy. I think they should be bigger on the wealthy than equal, to redistribute wealth and help the poor more, but its kind of a push for me. I think its fine either way. Overall, though, not looking at one specific tax, its pretty fair. So, yes, looking specifically at tobacco taxes, it hits the poor more than the rich, as does the state lotteries. I thin that, by themselves, they are a bad thing.

[TheScotsman]

Essentially ANY tax on any product is more detrimental to the poor, than the well off. It isn't just a tobacco tax, but all fixed-rate taxes. "green" incentive taxes will be the same, inflicting more harm on the poor, and little effect on the well off. It is something to keep in mind as the gov't considers things like cap & trade, emission taxes, per-mile road use fees, the list could go on for pages!

Tobacco, or any sin tax is nothing more than using the tax code to legislate morality, or behavior. A bad concept to begin with but gov't being what it is, gets used to spending the money gained from "special" taxes, then as the behaviour is modified as they intended to (i.e. fewer smokers) the gov't doesn't quit spending the $... suddenly all those programs they were funding with sin tax are leeching off some other part of the system.

The gov't needs to learn to function more efficiently, and on less.

[judgeposer]

Essentially ANY tax on any product is more detrimental to the poor, than the well off. It isn't just a tobacco tax, but all fixed-rate taxes. "green" incentive taxes will be the same, inflicting more harm on the poor, and little effect on the well off. It is something to keep in mind as the gov't considers things like cap & trade, emission taxes, per-mile road use fees, the list could go on for pages!

Tobacco, or any sin tax is nothing more than using the tax code to legislate morality, or behavior. A bad concept to begin with but gov't being what it is, gets used to spending the money gained from "special" taxes, then as the behaviour is modified as they intended to (i.e. fewer smokers) the gov't doesn't quit spending the $... suddenly all those programs they were funding with sin tax are leeching off some other part of the system.

The gov't needs to learn to function more efficiently, and on less.

Even if we disagree with sin taxes, namely on the grounds that they're regressive--disproportionately affect lower income earners--or that they otherwise legislate morality, we should pay attention and give rebuttals to those arguments for them without straw-manning them. One rationale in defense of sin taxes is that those who buy such taxed items produce an externality that the government must account for through its taxation of that product. In other words, if it can be shown that those who purchase tobacco products have less healthier lives, the cost of which might end up burdening non-smokers/users, then the cost of using those products must be recouped by government in order to pay for the offset. We can substitute tobacco use with any other perceived vice, like alcohol consumption. The rebuttal is, perhaps, that every user of the product doesn't produce those sorts of negative externalities--but until we can distinguish cleanly those who do from those who don't, we've made no progress in overcoming this argument, I don't believe.

Such taxes are one way the government aims to correct the "free rider problem."

With respect to legislating morality - that's what law does, largely. I define morality for our purposes as some set of normative rules. Of course it can also mean something more extended and developed, but we can reduce any set of morals to this simple definition, I believe.

Save for a discreet body of simple court rules, such as timeliness of suits (i.e. statutes of limitation), or filing requirements (i.e. civil procedure), laws coerce us into functioning some way under the pain of punishment (whether civil or criminal). Without commenting on whether laws or morality come first, and which informs which, laws have tremendous moral impulse and effect. Most simply, most laws legislate some sort of morality. Even to say that laws merely produce efficent outcomes, as some positivists--those that see morality completely disconnected from law--say, such a thesis still means that laws operate according to a morality that prioritizes efficiency. Those of us, like us tobacco smokers, who disagree with the government legislating against our prefences and supposed vices simply disagree with the sort of morality that guides those laws. We don't disagree, however, that laws shouldn't follow some moral framework. We disagree with it following a framework that construes our behavior as somehow a vice or undesirable.

[Dr. B]

I don't know how I'm the first to mention this, but is the tobacco tax, as well as other sin taxes, not proportionate? Meaning that the tax is levied according to quantity consumed, not with any regard to income or wealth. It could be said then that the tax actually affects the rich more because of their increased propensity to spend. One could also say it burdens the lower class more heavily if an aggregate measure of demand is taken (rather than an evaluation of individual reserve price).

I believe the bottom line is that sin taxes affect consumers, regardless of income. As for the government legislating morality: It is quite apparent and I feel I don't need to contribute on that front. However, I wonder where are all the complaints about tax incentives to file jointly (rather than separately) or to buy expensive green products? Those are relatively hurtful to the lower class.

[Dr. B]

Missed the edit window...

My above assertion about the proportionality of sin taxes is based on the presumption that vice use is a choice, not a disposition. Though measuring the aggregate, in an economy comprised of more lower than higher class citizens, may provide incentive to declare that vice use is highest among the lower class, the subjectivity of the declaration, I believe, is not concrete enough to presume this tax regressive.

[judgeposer]

Missed the edit window...

My above assertion about the proportionality of sin taxes is based on the presumption that vice use is a choice, not a disposition. Though measuring the aggregate, in an economy comprised of more lower than higher class citizens, may provide incentive to declare that vice use is highest among the lower class, the subjectivity of the declaration, I believe, is not concrete enough to presume this tax regressive.

Are you saying that we cannot consider such vice taxes regressive without knowing more about the consumers of vice-taxed items, namely the income of those who buy those taxed items? Vice taxes could be regressive if we can show that more lower income earners buy vice-taxed products? - and/or the amount of vice taxes paid by lower income earners exceeds the amount paid by higher income earners?

But, even if regressive, vice taxes tax discretionary spending (on a vice, that's chosen, as opposed to taxing something we can't do without).

Do I have it right? Edited March 21, 2009 by judgeposer

[Dr. B]

I was only preemptively defending my stance that "sin" taxes are not regressive. The legislation does not dictate that the consumer is responsible for paying the tax levied - it could be the distributor or the retailers. Naturally they tend to pass the costs on to the consumer, but the tax does not discriminate between consumers of varying socio-economic strata. It is a consequence of our population distribution with regard to socio-economic classification that we find the burden of the tax carried by our lower class. There is no more to it. Arguments about proportionality and the "real" effect on people's welfare are frivolous because the same contentions can be applied to a plethora of other taxes, dissolving the distinction between types of taxes. I believe the distinction ought to be made by evaluating the explicit consequences of the tax legislation, not by the implicit consequences following the introduction of confounding variables.

The possibility remains that vice taxes are a weapon against the poor. If however you believe this, are poor, and would like to resist; I have a novel solution: Stop buying smokes. Soon enough only rich people will be buying tobacco and will carry the burden of the tax. Your regressive tax is now progressive. Get some champagne and celebrate... oh wait.

Yes it is true the government pursues social agendas through the treasury sometimes, but do yall maybe think this is a fight against smokers and drinkers, not the poor?

P.S.
Sorry if I came off like an ass, I just don't buy this.

[Sonthert]

I think its pretty close to universally accepted that excise taxes are regressive...look it up. Just because you don't favor the appellation doesn't make it false.

A regressive tax is one that people with less money are paying a larger percentage of their income in terms of a tax than people with more money. A progressive tax is one where people with more money are paying a larger percentage of their income in a tax. Use taxes are almost always regressive. A tax on the theoretical special fuel that private jets use might be an example of a progressive use tax, but all use and sales taxes in the U.S. that I can think of are regressive. Income taxes, on the other hand are frequently setup to be progressive.

[Dr. B]

The tax rate of a sin tax is constant. If the tax rate increases as the tax base increases, the tax is progressive - the converse holds as well.

In their institution yes, sin taxes become somewhat regressive because 5 dollars paid by a man who earns 10,000 a year is a more substantial loss than what a 5 dollar expense by a man who earns 100,000 a year is, but these are confounding variables.
It is the relationship of a tax rate to the base upon which it is levied that defines a tax as proportional, regressive, or progressive; not the effects implicit of its implementation on income unless income is the tax base.

In the case of proportionate taxes, the total tax is calculated as the tax rate ® times the tax base (p) times the quantity of good consumed (q): (RPQ). A man buys 5 packs of cigarettes valued at 5 dollars each and taxed at 20%. Assuming the tax is not preemptively paid the man would owe: 5(5x.2)+(5x5) = $30 or 5(5+(5x.2)) if taxed preemptively - regardless of his income. Furthermore the man has the option to opt out of purchasing cigarettes and therefore will pay $0 in taxes. Use (Sin) taxes are inherently proportional. Edited March 23, 2009 by Dr. B

[Sonthert]

The tax rate of a sin tax is constant. If the tax rate increases as the tax base increases, the tax is progressive - the converse holds as well.

In their institution yes, sin taxes become somewhat regressive because 5 dollars paid by a man who earns 10,000 a year is a more substantial loss than what a 5 dollar expense by a man who earns 100,000 a year is, but these are confounding variables.
It is the relationship of a tax rate to the base upon which it is levied that defines a tax as proportional, regressive, or progressive; not the effects implicit of its implementation on income unless income is the tax base.

In the case of proportionate taxes, the total tax is calculated as the tax rate ® times the tax base (p) times the quantity of good consumed (q): (RPQ). A man buys 5 packs of cigarettes valued at 5 dollars each and taxed at 20%. Assuming the tax is not preemptively paid the man would owe: 5(5x.2)+(5x5) = $30 or 5(5+(5x.2)) if taxed preemptively - regardless of his income. Furthermore the man has the option to opt out of purchasing cigarettes and therefore will pay $0 in taxes. Use (Sin) taxes are inherently proportional.

Your first premise is sound, your second premise is false in the context of what we're discussing.

From Wikipedia, Regressive Taxes
"The term is frequently applied in reference to fixed taxes, where every person has to pay the same amount of money. The regressivity of a particular tax often depends on the propensity of the tax payers to engage in the taxed activity relative to their income. In other words, if the activity being taxed is more likely to be carried out by the poor and less likely to be carried out by the rich, then the tax may be considered regressive."

and "Sin taxes are also criticized for being regressive, since the products taxed (usually alcohol and tobacco) are often consumed more (or at least to the same extent) by the lower classes."

Pick up any scholarly Economics book (At least 95%+ of them will, I'm sure) and it will say the same thing. Wiki is simply easier to copy and paste from.

So what are you talking about?

[Dr. B]

In light of further research, I suppose now that the consequences presumed by the creation and implementation are not mutually exclusive. So be it. I was analyzing the relationship of tax rate to base - the origin and explicit behavior of taxes; not the relative impact on income - which is apparently incorrect.

The only question which remains to me is as what do you label a tax that has a decreasing rate related to an increasing tax base?

[Sonthert]

The effects of the tax are independent of the tax structure. A progressive tax on liquor, depending on its importation value, could still end up being regressive since poor people drink more cheap liquor, although the tax rate per bottle would be less. It depends on the elasticity of demand and the propensity of people by class to engage in the use or purchase of the commodity. If I understand your question (although I'm a little foggy on it). If we were to tax diamonds regressively. the overall tax would be progressive since the wealthy buy more diamonds, the elasticity of demand of diamonds is fairly steep, people are more likely to not buy a diamond if the price goes up, unlike toilet paper, for instance. If we were to tax houses regressively, presumably we would find the tax to be regressive due to the low elasticity of demand. I hope that satisfies the question.

[Dr. B]

I understand your response. Our arguments were regarding the same name to different things. I understand the effects of a tax are independent of its structure (even the IRS acknowledges it) but I was attempting to define the nature of the tax as its creators, rather than observers, did - that is with some homage to its function in isolation. Given the presence of confounding variables we are forced to instead examine each tax law as a singularity instead of establishing a tripartite classification of its origin. The question was prompted with regard to my assertion that we ought to classify taxes based on their explicit consequences, in which case the regressive structure detailed in the question being labeled regressive would necessitate that the sin taxes we are talking about to be deemed proportionate.

For sake of the thread, I will cede that sin taxes are regressive in nature. Edited March 24, 2009 by Dr. B

[mustang_steve]

Honestly, I think the idea of income tax simply sucks....use taxes are more fair. Just jack up the sales tax to cover the income tax if needed. This will remove tons of BS from teh average person's life...and also help streamline tax enforcement efforts (hint: costs less for the govt to do...a win-win).

The poor may cry foul, but if they are really that poor, I'm sure the govt can issue them a sales-tax exemption card. I think I recall a minister using one of those about a decade ago at a store...so I know they exist already.

Simply, if you are in a very low tax bracket, you get the card. If you are in a state where you don't need the lack of taxation to get by, you pay the same taxation as anyone else.

To me, that's as close to fair as we can get.

Sin taxes I think are simply rubbish....they merely serve as a means for the government to profit from what they see as immorral.
Edited March 30, 2009 by mustang_steve

[ilikemyusername]

mmmmmm braaaaains..........