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SIN TAXES 59
Social Science and Public Policy
Morality is a choice, a judgment as to right and
wrong. Behavior is an expression of morality; sin-
ful behavior is immoral. Economics is the science of
choices, the allocation of scarce resources. Incentives
(and disincentives) are at the heart of economics. Pub-
lic policy is an effort to direct or manage behavioral
choices made by large numbers of people (Kay, 1990).
In matters of taxation, policy issues are potentially di-
visive, historically bitter, and of paramount importance
in establishing and destroying institutions (Weisman,
2002). Industries and firms can be created or eliminated
by broad tax policies. Can public policy and economics
be used to affect morality?
Original efforts to tax vices or other undesired ac-
tivities have been attributed to Puritan efforts to curb
extravagance in American colonial times. However, sin
taxes pre-date the Puritans. Popes have reportedly lev-
ied taxes on prostitutes to raise funds for religious
projects. For example, Pope Leo X required a prodi-
gious sum of money to fund his interests. He levied a
sin tax on thousands of registered prostitutes. He in-
creased the sale of indulgences. He rescued souls in pur-
gatory—for a fee. Pope Clement II endowed the Church
with the gains of a brothel. Every person guilty of pros-
titution was forced, when disposing of her property, ei-
ther at death or during life, to assign half to a convent.
A tribunal was also established having jurisdiction over
brothels, upon which a tax was laid, continuing until
the middle of the 16th century. In the twelfth century, a
betrothed husband who repudiated his wife prior to
marriage could be fined for such behavior. Russian czar
Peter the Great imposed a tax on the length of beards,
taking advantage of a Russian vanity. Recently, the state
of Alabama considered a debate of its tax code based on
“Judeo-Christian ethics”. Today, alcohol, tobacco and
SUVs are considered to be sinful by some people. De-
ciding what behavior is sinful is in itself a difficult pub-
lic policy choice, not just an individual dilemma. If
moderate consumption of alcohol reduces the chances
of heart attacks, is alcohol helpful or sinful?
The Popes’ taxes on prostitution underscore one of
the fundamental dilemmas of the sin tax: can a tax on
SIN TAXES
Peter Lorenzi
something “bad” be justified by the revenue it generates
for something “good”? Does raising taxes on sins en-
dorse or discourage immorality? Sin taxes are a subset
of consumption taxes. Consumption taxes serve to raise
taxes while also curbing consumption of the taxed good.
The reduction in consumption will be a product of the
level of the tax and the elasticity of demand for the
good. Sin taxes are markedly different than another
‘moral’ tax, the luxury tax. Luxury taxes, like sin taxes,
are consumption-based taxes. However, spending on
luxury goods is not necessarily sinful. Also, high-priced
luxury goods are elastic, unlike the goods and services
which sin taxes are imposed on, which are highly in-
elastic. Some might frame ‘wealth’ as a good subject
for sin taxes; however, wealth is a desired social good.
Income derived from wealth could be subjected to a
tax. Conspicuous, unwarranted, or socially undesirable
expenditures of wealth may be good prospects for taxa-
tion, but not wealth itself. The re-distribution of wealth
can be done voluntarily and is promoted with tax cred-
its or deductions.
The rational paradox presented by sin taxes is not
peculiar to debates about morality and tax revenues.
Some rational taxes raise moral issues. Some moral taxes
might yet be irrational. For example, recent events in
California’s electricity crisis illustrated confusing pub-
lic policy attempts to keep energy prices low while ask-
ing people to reduce energy use. Add the desire to pro-
vide secure, consistent sources of energy, requiring
massive investment, a huge military and defense struc-
ture, and a large profit incentive to investors, the irra-
tional elements of “moral” public policy should quickly
become evident. Is it morally appropriate to ask people
to conserve energy at the same time they are encour-
aged to consume? Or consider public lotteries. Since
low-income people are the lotteries’ primary subscrib-
ers, government lotteries are inherently regressive,
yet they are widely promoted by governments. Lottery
funds have been earmarked for sports facilities. Is it
morally appropriate to encourage poor people to buy
lottery tickets to fund stadiums filled by rich execu-
tives?
60 SOCIETY • MARCH/APRIL 2004
The balance between public policy concerns and in-
dividual rights is precarious in many cases, exacerbated
when issues of morality enter the discussion. McGowan
and Brown (1994) studied the growth of American state
lotteries since 1964 along with efforts to ban or to at
least restrict the legal locations where smoking is per-
mitted. They describe the controversy in terms of
“societal good” and the “rights of the individual”.
The “ethics of sacrifice”, based on de Tocqueville’s
praise of American habits of family life, religious
tradition, and engagement in politics, support efforts
to maintain traditional institutions. In contrast, the “eth-
ics of tolerance” rejects the notion of abusing individual
rights as a means to a greater end. But tolerance can
also “promote a rather narrow, selfish focus on the in-
dividual with little regard of how individuals need to
relate to one another in order to live in a society.” [p.
259]
An ethic of sacrifice suggests that limits or taxes on
less socially desirable behaviors can contribute to the
common good and support a broader social interest.
For behaviors deemed to be counter to the public inter-
est, yet seemingly impossible to eradicate, this suggests
we impose sin taxes. “Sin taxes” is a popular term for
fees charged for guilty pleasures or human indulgence,
such as smoking cigarettes and drinking alcohol. Sin
taxes can be defined as those government revenues gar-
nered from the purchase or consumption of resources
or services exhibiting the following characteristics:
1. Consumption exhibits an inelastic demand curve.
The behavior is addictive. That is, a small change
in behavior will generate significant tax revenues
yet not eliminate the behavior.
2. The behavior can be considered self-destructive
or harmful to the individual. Sinful behaviors gen-
erate immediate or long-term personal negative
consequences like poor health or obesity.
3. The behavior generates negative externalities—
other people suffer. However, sins are often gen-
erally, but not universally, considered to be so-
cially undesirable. Consumption of the product
or service raises concerns or is generally judged
to be counter to socially desirable behaviors or
to be dysfunctional in terms of the social wel-
fare. Others suffer from the acts of an individual.
A tax is a negative consequence applied to a behav-
ior. Taxation is a punishment. Sin taxes, while punish-
ing, are not necessarily prohibitive, as they are levied
on inelastic demand. The demand is inelastic because
the behavior or substance is highly pleasurable, habitual,
or addictive. In behavioral management terminology,
the behavior is punished, not the person.
Practical and philosophical issues arise. Who decides
what constitutes sin? What is an inappropriate, or an
undesired behavior? If these behaviors are addictive,
can a person freely choose to avoid sin? Are some be-
haviors so explicitly harmful and immoral that they
need be eradicated, not just discouraged? For example,
the death penalty is the ultimate sin tax for heinous
crimes. Would a tax on an abortion be considered a
moral sin tax? Does the endorsement of a “sin tax” ap-
proach put us on a slippery slope? These questions are
appropriate to the taxation of any behavior, not just
sinful ones. This requires explicit attention to the deci-
sion made any time a government chooses to tax: On
what should taxes be levied? The decision requires
moral, political and economic considerations. The power
of governments derives from its ability to assess taxes.
There are negative externalities to sin taxes: Who loses?
Who abuses the new rules? Do sin taxes encourage people
to hide rather than report the sin, driving sin under-
ground or out of the state? How, when, where and from
what person do we collect the tax? The devil is in the
details.
What is a sin?
In the context of taxation, ‘sin’ is a popular term yet
it is loaded and misleading. A religious definition of
sin is not helpful here, as religious sins are proscribed,
not simply tolerated and taxed. Fortunately, the opera-
tional definition of sin employed here—addictive, self-
destructive, and socially undesirable—effectively de-
scribes the targeted behavior without necessarily
crossing into religious matters. A sin is behavior undes-
ired enough so as to generally earn the admonition of
the public yet not so heinous so as to earn total revul-
sion from the public. For example, driving a gas guz-
zling, road-wearing SUV might satisfy our definition
of sin, yet such driving behavior fails most tests of re-
ligious sin. The SUV is not sinful; consuming gasoline
is the problem. Imposing a cost to gas consumption is
not a tax on SUVs. A similar argument could be made
for drinking a glass of wine. Those behaviors eligible
for taxation as ‘sins’ can be best described as activities
that are harmful in excess or in the long term, both to
the individual and to society in general.
In general, governments tax wealth, income, and
consumption (including sales taxes and tariffs). In
American politics, there is a broad, social interest in
using taxes to re-distribute income and wealth. There
is less of an interest in curbing consumption through
taxation, as consumption taxes raise effective prices and
make life more difficult for low-income consumers.
SIN TAXES 61
However, regressive taxes on low incomes, e.g., social
insurance taxes, are even more problematic for work-
ing, middle- and low-income consumers. And some
consumptions are clearly not in the best interest of tax-
payers, society and even the consumer. And here we
enter the domain of morality, sin and sin taxes.
Tax Arguments
Strong sentiments arise in any discussion of taxing
undesired behaviors. Basic arguments can be made
against taxing sins. Sin taxes are unfair to the poor be-
cause they are regressive (Lyon and Schwab, 1995).
Low-income people smoke more than do high-income
individuals, placing the burden of taxation on them-
selves. Low-income people are “targeted” by sin taxes.
A report (NCPA, 1998) showed that people earning less
than $15,000 a year paid 34% of the tax burden of an
increase in cigarette taxes, while those earning more
than $115,000 took on only 3.7% of the tax burden.
Sin taxes are regressive in practice if not in their de-
sign.
The revenue resulting from sin taxes directly or in-
directly causes the government to encourage rather than
to discourage the taxed behavior. In essence, the gov-
ernment becomes addicted to its ill-gotten gains. At a
time when governments seem eager to find additional
sources of revenue, sin taxes provide governments with
opportunities to raise money while offering rational-
izations for taxing sin. Sin taxes make the government
a promoter of sin.
Sin taxes are simply another rationalization for the
government to take more money from its citizens, and
to make it look like it is someone else who is being
taxed—namely sinners. Louisiana’s Huey Long report-
edly described people’s tax preferences as “Don’t tax
you. Don’t tax me. Tax the fella behind the tree.” [cf.
Seligman, 1892] Related to the previous point, some-
times the desire to secure additional tax revenue causes
legislators to aggressively seek out or even define “new”
sins. Recent legislative discussions of taxes on soda and
cholesterol come to mind. Sin taxes provide govern-
ments with an excuse to create new ways to tax.
Sins should be prohibited, not punished (taxed). That
is, if it is a sin, the government should be disposed to
eradicate the activity, not to suborn it. Sin taxes make
governments hypocritical.
Sin taxes in one location simply cause people to seek
other locations to obtain the taxed good or service. When
police crack down on drug trafficking in one area or an
adjacent country’s government imposes a high sin tax,
often the result is a geographic transfer of the problem,
not a solution. This sin tax simply moves the sin prob-
lem into someone else’s neighborhood, underground,
or under the rug. Sin taxes promote and reward dis-
honesty.
Sin taxes are discriminatory. Focused taxes, espe-
cially those with a moral imperative attached, surface
Nobel laureate James Buchanan’s concerns with
‘meddlesome preferences’ (DiLorenzo, 1997). Multiple
narrowly based taxes interfere with individual choices
in a fashion unlike those created by broad-based taxes.
Sin taxes reduce the occasion of sin. By their nature,
taxes add to the cost of the good or service. Since an
increase in costs reduces demand, sin taxes earn rev-
enue while reducing the overall level of the undesired
activity. At its extreme, a sin tax would be capable of
eliminating the behavior. And, if the behavior is worth
eliminating, an extreme tax is justified. The “lost” rev-
enue stemming from the absence of the taxed activity
is less costly than the public or private cost of the elimi-
nated behavior. Sin taxes produce an economic result
that other legal strictures may not produce as effec-
tively.
Sin taxes generate funds that promote the public good
and may fund the costs created by their negative exter-
nalities and self-destructive behavior. Since many vices
appear highly resilient to efforts to reduce them, taxing
them provides an appropriate, positive by-product of
the undesired behavior. Unable to eliminate undesired
behavior, there is a reasonable argument to benefit from
its occurrence. And the outcomes of these destructive,
socially negative behaviors incur a social cost that may
best be funded through sin taxes, e.g., health care for
smokers.
Sin taxes reduce the need to tax prosocial behavior.
Sin taxes discriminate among ‘undesirable’ choices
while broad-based taxes, such as income and payroll
taxes, both discriminate among and punish many desir-
able, prosocial behaviors. The alternatives to sin taxes
include income and wealth taxes. “Income” and “wealth”
are positive goods with a better reason to merit reduced
or eliminated taxation. Revenues from sin taxes should
be used to offset—directly or indirectly—taxes on
prosocial behavior. Sin taxes, as with any other tax,
require an economic and moral decision as to the ap-
propriateness of the tax itself. Who does it harm? What
does the tax improve? Taxes on sin are no more prob-
lematic morally than are taxes on income, wealth, im-
ports, work or the like. The issue is to recognize the
three components of a ‘sin’ and to realize that taxes on
prosocial goods and behaviors are probably even more
questionable.
While many ‘undesired’ behaviors are hard to elimi-
nate, efforts to reduce their occurrence are rational,
efficient and moral. Sin taxes are rational, efficient,
and moral.
62 SOCIETY • MARCH/APRIL 2004
Potential Sins: Anti-Social Behavior
Any general treatment of sin taxes required atten-
tion to specific “sins” that could be subjected to the tax.
This analysis also prompts the consideration of desired
or prosocial behaviors or goods that should experience
lower tax rates. Sin taxes can be regressive but it is
incorrect to say that low-income people are “targeted”
or “forced” to pay sin taxes. True, the addictive nature
of sin is problematic yet it should not be used as an
excuse for denying attempts to curb undesired behav-
iors.
State lotteries and other government-owned gam-
bling are by nature a form of direct taxation, not just
taxes on the proceeds of gambling. The purchase of a
lottery ticket is a tax; lottery awards are a “cost” of
collecting the tax. While states seem interested in en-
couraging people to gamble “legally”, there is some
doubt as to whether or not this is an appropriate state
activity (cf. McGowan and Brown, 1994). And studies
show that the tax is regressive. Those with the lowest
incomes are more likely to gamble on state lotteries
than are high-income individuals (who gamble in the
stock market or elsewhere). Is it immoral to collect
taxes voluntarily from the poor? If state lotteries were
to be privatized and taxed, the government would be
less responsible for encouraging people to take statisti-
cally risky chances.
Governments currently collect billions in excise taxes
on the production of alcohol. For example, taxes rep-
resent about 43 percent of the cost of a can of beer.
Since 1990, when beer taxes were boosted as part of a
larger tax package, the beer industry has lost 60,000
jobs. American brewers pay seven times more in taxes
than they earn in profits. Private, unregulated produc-
tion of alcohol is discouraged and, in many cases, pro-
hibited. Sanctions on driving while under the influence
of alcohol have also been widely adopted and strength-
ened in the last twenty years, creating an indirect tax
on alcohol consumption. In Finland, the fine for driv-
ing under the influence is determined by the person’s
income, eliminating the regressive nature of the pen-
alty while creating a creative variant on taxing income.
Prostitution is legal in some American states and in
a few countries. This “oldest profession” seems highly
resistant to efforts over thousands of years to eliminate
this behavior. Can it be moral to tax something that fits
the religious category of “sin” that often earns public
contempt, and that is widely accepted (however grudg-
ingly) as victimless, consensual sexual relations? Or
should the behavior be proscribed and punished?
Pornography has become more widespread with the
advent of video and private, pay-per-view channels
available to viewers. Significant expenditures for por-
nography are actually collected by cable television and
Internet operators, not just the producers of the por-
nography. In the last twenty-five years, pornography
in the United States has become a multi-billion-dollar
business.
Alcohol, as a widely manufactured product, is usu-
ally considered a drug separate from other natural sub-
stances that are subject to abuse. Tobacco, cocaine,
marijuana, heroin are all abused substances yet their
legality and regulation differs widely around the world
and even within the United States. Arguments as to the
total net economic and social impact of each of these
drugs—along with alcohol—have been heated and un-
productive. Is one of these drugs safer to individuals or
less expensive to society than another? Is it the level,
the location, or the ancillary activities of the consump-
tion of the drug that makes it unacceptable? Govern-
ment needle exchange programs for intravenous drug
users are subsidies of undesired behavior, yet justified
in their effect in reducing even worse outcomes, e.g.,
AIDS transmission.
Carbon-based fuels come very close to exhibiting
the three conceptual characteristics for being subjected
to a “sin tax”. Americans are addicted to driving and
cheap gas. Immense imports of foreign oil produce
debilitating pollution and expensive political compro-
mises. In practice of late, efforts to reduce petroleum
consumption are reversed by “cheap energy” policies
aimed at serving an energy-intensive global economy.
These policies include low prices for gasoline for com-
muting knowledge workers and low electricity prices
for a wide variety of home products. Cheap fuel has a
high cost. Traffic congestion is just one direct cost. In
London, average speeds on congested roads are three
miles per hour. Auto transport, especially commuters,
lead to huge investments in public roads, each trum-
peted to reduce congestion while most commonly pro-
ducing even more congestion. Some suggest user fees
for building more highways; alternatively, encourag-
ing less driving, requiring less investment in roads,
would produce double the savings. Others propose limits
on oil consumption or public vouchers for gasoline.
Politicians have proposed a “Twinkie tax” as a cure
for the “fattest people” on earth. The director of a uni-
versity nutritional clinic suggested slapping all high fat,
low nutrition foods with a substantial sin tax. Legal
efforts against McDonald’s and other fast-food purvey-
ors recognize the relationship between poor nutritional
choices and obesity. Cholesterol, or ‘fat’, is a more re-
cent candidate offered by legislators for taxation, along
with taxes on soda purportedly aimed at reducing ado-
lescent obesity. Setting aside the expectedly imperfect
link between the taxes raised and obesity reduction ef-
SIN TAXES 63
forts, attempts to attach taxes to fat, sugar, cholesterol
and other “bad” or “nutrition-free” foods are tenuous
at best, but a recent and non-trivial tax gambit.
Some government-imposed charges on its citizens
are in the form of fines for anti-social behavior (e.g.,
speeding tickets, civic fines or penalties imposed on
unkempt yards, environmental discharge fees). These
fees and fines are meant to punish and discourage un-
desirable behaviors while also generating tax revenues.
Some might even argue that it is in the government’s
interest to allow these behaviors to continue, to maxi-
mize government revenues.
Potential Virtues: Prosocial Behavior
The concept of sin taxes implies the existence of a
complementary set of prosocial behaviors. To encour-
age prosocial behaviors, they should not be taxed. In
some cases, they deserve to be subsidized, such as free
public education. There are important prosocial behav-
iors that merit recognition and tax support. They need
to be reinforced, not punished.
The federal government, in cooperation with health
authorities, produces a set of dietary recommendations.
There is widespread, researched and general knowledge
as to appropriate foods to better ensure health. Nutri-
tious foods can be subsidized and made available through
better education, marketing and distribution. Sales taxes
and other consumption taxes on healthy food are inap-
propriate.
Clothing is a prosocial human need. Many Ameri-
can states tax the purchase of clothing through sales
taxes, leading to short-term ‘tax-free’ promotions in
some states, usually near the onset of the public school
year. Norwegians save money by shopping for lower-
taxed goods in Sweden, while the Swedes seek lower-
taxed goods in Copenhagen. Value-added taxes on manu-
facturers are common outside the United States, although
domestic consumers of the clothing subsume the im-
pact of the taxes. Exported clothing is often not taxed.
Taxes on the production and purchase of clothing should
be reduced or eliminated.
Shelter is a more enduring form of protection than
clothing. American states and localities are replete with
taxes on property and dwellings. Property taxes are the
primary source of local educational funding. This prac-
tice also encourages wealthy landholders with few chil-
dren to reject taxes or tax increases on property, which,
under the current system, hurts education. The link
between property and educational funding needs to be
eliminated. Services provided to homeowners: refuse
collection, sewage, utilities, cable television, should not
be funded by property taxes. Governments also impose
high transaction costs, fees, taxes and other charges for
home purchases. These “closing costs” are significant
barriers to home purchase and should be reduced or
eliminated.
While food, clothing and shelter are often consid-
ered immediate, sustenance needs, education is an in-
vestment, a current cost incurred to produce a better
return in the future. Money spent on private educa-
tional purchase has typically been first subject to taxa-
tion as earned income. Students attending public schools
receive a free good and those attending private schools
further reduce the cost of that free good to the govern-
ment. With the advent of vouchers and other, creative
tax deductions for ‘private’ educational expenditures,
the tax burden for education has been reduced only
marginally. Most private expenditures by citizens for
education are funded with after-tax dollars. Taxes on
educational expenditures are counter to the greater public
good. The ‘separation of church and state’ issue has
already been addressed; many religious-based schools
receive some public funds for the educational services
they provide, just as religious charities offer tax breaks
for their donors, based on the charitable nature of their
work.
While America spends over a trillion dollars each
year on health and medical services, many of the mala-
dies requiring huge expenditures are preventable. Ex-
amples include obesity, auto accidents, substance abuse,
and risky births to teenagers. Many of these actions
requiring high medical costs are self-induced and avoid-
able. Efforts to provide government-funded or other
forms of health insurance constitute a “moral haz-
ard” by reducing the negative consequences of poor
choices and bad behaviors. “Free” health care en-
courages health care costs to increase. Allowing doc-
tors to prescribe treatments without regard to cost or
cause further accelerates this problem. Efforts to main-
tain health or to improve on bad health habits should
not be taxed.
People work to create wealth. While creating wealth
is a prosocial act, one of the most popular bases for
taxation in America is work. Federal, state and local
governments tax work through a number of income
taxes based on the level of income earned, the method
by which it is earned (some income is judged ‘un-
earned’), and the location where it is earned (e.g., People
who live in Connecticut and work in New York City
have been subjected to ‘commuter’ income taxes.) Sub-
sidizing or supporting income-generating activity may
appear to be unnecessary, as income provides a direct
benefit.
Almost all households reporting annual incomes of
less than $36,000 pay no income tax. Unfortunately,
they are likely to pay about 16% of their income in
64 SOCIETY • MARCH/APRIL 2004
payroll (“social security”) taxes. Social security taxes
are an excellent example of the rampant inflation in a
regressive tax on work. In 1935, the maximum annual
payroll tax was $60. In 1955, it was $168. In 1975, it
was $1,650. By 1997, it was about $10,000. In 2002,
the maximum tax was about $13,000. In that time, the
tax rate on $85,400 of work-generated income climbed
from less than 0.1% to more than 15%. Social security
taxes are notoriously and patently regressive. Low-in-
come earners are taxed on all their work income. And
with the 2002 cap on wages taxed at $85,400, the mar-
ginal rate then dropped to 0%.
Better that we apply a flat tax rate based on income
(rather than work), including inherited income (tax the
recipient of the inheritance, not the estate), coupled with
significant personal deductions, e.g., $7500 per house-
hold member. This would make the flat tax effectively
progressive (people earning lower incomes would pay
lower effective rates due to their personal deduction)
and offset the regressive nature of “sin taxes”.
Interest on savings is taxed. Accumulated savings at
one’s death is subject to inheritance or estate taxes, bet-
ter defined as “death taxes”. Current payroll tax policy
also creates an implied savings plan managed by the
government, providing a disincentive or rationalization
for low savings rate by individuals. People can justify
low personal savings rates with the belief that the pay-
roll tax system (the “Social Security Administration”)
is saving the money they need for retirement. But that
is hardly the case. Eliminate taxes on savings and pay-
roll taxes on work.
Reward Prosocial Behavior
Any time a tax is imposed, governments make im-
plied or explicit statements as to the appropriateness of
the taxed behavior. Taxing quickly and perhaps always
becomes a moral question. Governments cannot tax an
activity and claim an indifference towards the occur-
rence of the taxed behavior. They can’t avoid moral
judgments in taxation.
This analysis provides the basis for some fundamen-
tal changes in public policies regarding taxation and
incentives for sin and prosocial behavior, respectively.
While the government provides taxes and incentives,
many services currently provided by the government
can be moved to the private sector. Here are basic rec-
ommendations: Eliminate social security payroll taxes,
fund poverty and retirement support with general tax
revenues on a means-tested basis, and identify undes-
ired behaviors to be taxed for general revenue. Impose
a national gasoline tax of $3, raise taxes on tobacco,
gambling, and fatty foods, and shift to a flat income
tax rate of about 20%, with a personal deduction of
$7500. Bill estates to recover from the deceased per-
sons’ retirement and medical costs paid by the govern-
ment. Gambling and lottery schemes run by the gov-
ernment are disguised forms of taxation and
governments have no business or skill at running them.
Taxing sin is preferable to running the business. Pro-
vide vouchers or tax credits for education and health
care instead of government-owned institutions—edu-
cation and health care are critical national priorities but
they are not activities where the government excels.
Corporate profits are best reinvested, shared with em-
ployees or distributed as dividends, so corporate in-
come taxes should be eliminated.
Redefining ‘Sin’
The use of the term, “sin tax” is unfortunate. Reli-
gious sin is to be avoided or eliminated, not taxed for
the benefit of others. Much of what is quickly labeled a
‘sin’ under the concept of “sin taxes” is not immoral or
sinful by nature, although they might be so in the ex-
treme. Drinking alcohol is not inherently sinful or im-
moral. Operating a motor vehicle while intoxicated is
illegal, immoral and sinful.
‘Sin’ is a problematic, loaded word. There are pos-
sible church-state separation issues inherent in the use
of the term as a matter of public policy making. How-
ever, there are certain, “risky” behaviors and products
that can be deemed socially inappropriate, undesirable,
anti-social, risky or destructive at some level of their
production or use. Herein lays the problem. The terms
“socially inappropriate” and “at some level of their pro-
duction or use” open public policy debates that may be
endless and, if resolved, may be unconstitutional.
The term “sin” should not be linked directly with
“taxes”. Behaviors that have the three characteristics—
inelastic demand, negative externalities, and social dis-
dain—should be prime subjects for taxation without
using the term “sin”.
If you want less of something, tax it. If you want
more of something, reduce taxes on it. Governments
should reduce their emphasis on the taxation of prosocial
behaviors or goods in favor of increased taxation of
undesired behaviors. Sin taxes are not immoral but their
application to selectively specific behaviors or goods
give rise to questions of morality as well as public
policy. Tax schemes achieve economic efficiency at the
societal (macro) level by reducing the occurrence of
“sin” and by generating tax revenues from these behav-
iors and reducing the taxation of prosocial goods and
activities.
“Sin taxes” may be the best form of taxation. They
encourage rational, desired behavior. They discourage
undesired behaviors. They generate significant govern-
SIN TAXES 65
ment revenues. Although often regressive in practice,
sin taxes are voluntary. They reduce the need to tax
prosocial behaviors or goods. Morality, public policy
and economics suggest that sin taxes should be increased
and that taxes on prosocial behavior should be reduced
or eliminated. The effect should be to generate tax rev-
enue, deter sin, encourage prosocial behaviors and, in
the long run, to substitute more prosocial behaviors for
sin.
SUGGESTED FURTHER READINGS
DiLorenzo, Thomas J. 1997. Taxing choice to fund politi-
cally correct propaganda. In William F. Shughart II
(ed.) Taxing choice: The predatory politics of fiscal
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Peter Lorenzi is a professor of management in the Joseph
Sellinger, S.J. School of Business and Management, Loyola
College in Baltimore, Maryland.
