Friday, September 25, 2009

Good Question: Do Sin Taxes Really Work?

Sin taxes – such as those levied on cigarettes and alcohol – are frequently the subject of debate by tax experts because they try to serve two different purposes. First of all, they are a great way to generate revenue, but they also work to discourage certain behaviors. recently published a great piece on whether or not sin taxes actually work. Check out a section of their article below.

Government often uses the tax code to encourage and discourage certain behaviors. And budget times have state and federal governments looking for money. That combination has renewed interest in the idea of new sin taxes on soda and junk food. But do sin taxes work?

"The research around tobacco has shown that large increases on taxes on cigarettes has been the single most effective policy to reduce tobacco use," said Mary Story, a dietitian and public health professor at the University of Minnesota.

Story published a brief analyzing the impact and effectiveness of sin taxes, concluding that a 10 percent increase in sugar-sweetened beverage prices could cut consumption by 8 percent to 10 percent.

Story also wrote that "a few studies have concluded that, in response to changes in relative prices, some consumers will substitute a healthier beverage for an SSB. For example, a study conducted in 2004 found that increases in SSB prices resulted in small increases in consumption of whole and reduced-fat milk, juice, coffee and tea."

However, tracking the success of sin taxes is difficult. Advocates who are against smoking and alcohol abuse point to tax increases as a strong factor in reducing consumption. The American Lung Association says a 10 percent increase in cigarette taxes is strongly correlated with a 7 percent decrease in youth smoking.

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