As the Federal government continues with their financial woes and bond rate manipulation costs state and municipality millions if not billions of dollars those entities are coming up with creative ways to tax. One of the most common and popular way to raise revenue is so-called “Sin Taxes“. One new idea coming to a city near you is to tax soda consumption.

I’m going to explore the idea of a Sin Tax and whether it is a reasonable way for municipalities to raise money for their operations. I don’t want to get too deeply into the idea of waste and government overspending but focus more on whether these taxes are useful.

The Wiki article details the proposed benefits of such taxes which include the revenue raised and the societal benefit of increased cost and the accompanying discouragement of sin. In this case the societal good is the weight loss that might be associated with reduced soda consumption and its attendant health benefits.

Sin Taxes have a long history in the United States with tobacco taxes being the most prominently known. For those of you, like me, who love history, you’ll be interested to know that Alexander Hamilton proposed the first tobacco tax back in 1794. The current federal tax is $1.01 per pack while state and even city taxes vary. In Missouri, my home state, the tax is $.17 per pack. It turns out this tax burden is far less than I was led to believe by tobacco companies and smokers in general although that is to be expected. Missouri’s tax is the lowest in the nation.

There is, in fact, a correlation between higher taxes and reduced consumption. So that part of the argument seems to be true. If the price point rises to a certain level then a segment of the population will stop using the product. However, at least one study indicate that smokers and obese people are actually less of a financial burden on the health-care system because they die much earlier than healthy people.

One of the main arguments against Sin Taxes, and proposed nationwide consumption taxation, is that they are regressive in nature. What is meant by this is that two people who smoke a pack a day are taxed equally but one is wealthy and the other poor. Thus the poor person is paying a far higher percentage of their total income. In essence the tax forces poor people to quit or bear a much higher percentage burden. This could be deemed discriminatory.

There is no doubt that companies push such tax hikes onto the consumer but that is really beside the point. Studies indicate that raising taxes on soda will generate revenue for cities and will drive down consumption. Whether that consumption rate decline will result in less obesity and medical expenses is in doubt. It is certainly the right of cities, states, and the federal government to tax.

As a Libertarian I think people should largely be allowed to make their own decisions and government shouldn’t be in the business of discouraging or encouraging personal lifestyle choices. Contrarily I also think that all people and businesses enjoy the benefits of government building and maintaining roads, bridges, sewer systems, schools, and utility infrastructure and should pay for that boon. Back to the other side, I think taxing “sin” sends a bad message. We don’t want you to do something but we’ll happily take your money for doing it.

It’s a tough question. Certainly they have the right to tax soda but is it a reasonable exercise of government power?

I have to come to the conclusion that it’s legal but I don’t like it. I like taxes to be directly related to a function of government. A gas tax should go directly to roads and bridges. A property tax should go to schools. An airline tax should go to airports and their employees. Cigarette and Soda taxes should go towards public health-care costs if they are deemed to be an expense. When all the tax dollars are mixed and mingled strange accounting starts to happen and it becomes a magnet for waste and theft. Just as a quick example; let’s imagine all the money taken for Social Security was put into safe, low-interest bearing accounts and doled out only to those who paid in. It would be fully funded and not only fiscally solvent but be running huge profits by now.

I think that is a better solution than taxing soda but it would require a large effort. An effort that is worthwhile in my opinion. Have taxes support the specific government function to which they are related. If soda costs money in health-care then the tax should be used for that purpose. I’m not convinced reducing soda consumption will reduce obesity and even if it did that such effect would lower health-care costs. Thus, I don’t think a soda tax is reasonable.

What do you think? Tell me in the comments.

Tom Liberman
Sword and Sorcery fantasy with a Libertarian Twist
New Release: The Hammer of Fire