In a recent column at Bloomberg, Amity Shlaes writes that not all sin taxes, taxes on supposedly harmful behaviors, are applied to best revenue-generating effect. Shlaes is author of the excellent The Forgotten Man: A New History of the Great Depression. She finds that Franklin Roosevelt understood the best way to implement a ‘sin’ tax — apply the tax as a formerly forbidden substance was legalized:
Roosevelt and the Democratic Party saw that the nation was weary of Prohibition. So they ignored the moral question altogether, colluding to amend the Constitution and repeal the Volstead Act. The New Dealers then proceeded to tax the heck out of liquor, ignoring those who pointed out that liquor taxes were regressive….
In other words, the New Deal made an honest deal with the people: the public gets to drink, and the government gets a new tax. That agreement would have failed if liquor were already legal. But it wasn’t. Roosevelt knew that Americans would view the shift from no beer to taxed beer as a net improvement and stand, or wobble, behind him.
The revenue rolled in. In 1940, liquor taxes represented 11 percent of all tax revenue. Taken together, tax revenue from liquor and tobacco sales accounted for more federal revenue than the income tax.
Shlaes implicitly contrasts Roosevelt’s practical approach with a sin tax on already-legal behavior like using a tanning bed: since people can use tanning beds now, they view the addition of a tax as a net loss, taking away enjoyment from something they can do presently.
(Shlaes thinks that Pres. Obama could rake in vast amounts of money if he would legalize and then tax marijuana, following Roosevelt’s example. Since people can’t smoke legally now, they’d view the imposition of a tax a small impediment to ready access to marijuana.)
Setting aside Shlaes’s marijuana option, her greater point holds that one taxes for revenue, not for supposed health gains. Roosevelt saw this, and so he supported repeal of the Volstead Act, and used repeal to rake in revenue.
See, Snooki Tanning-Bed Protest Splits Sin From Taxes.
I’m not in the habit of suggesting new streams of federal revenue, and neither is Shlaes, I’d guess. Nonetheless, if one is to collect tax revenue, I’ll concede that it’s practical to avoid taxes as moralizing (over something like tanning beds, cola, or candy). Taxes to restrict a good, or curtail a practice, often prove ineffective at curtailing behavior or bringing in estimated revenue.
It’s simply shrewder to tax a good or behavior one expects to be commonplace and flourishing.