Thursday, February 18, 2010

Are Vice Taxes Good for the Economy?

Have you heard we're in a recession? Well, we are, and with declining revenue in most states, the government is coming up with ways to avoid huge cuts to programs important to everyone, like schools, social services, police and firefighters. The governor of Washington, Christine Gregoire, came out with her plan yesterday, and it includes taxes on:

*Bottled water (1 cent per ounce)
*Candy/gum (9.5%)
*Cigarettes ($1/pack)
*Soda (5 cents per 12-oz can)

It is estimated that these taxes would raise at least $600 million! Wow! I'm all for it, considering I don't drink bottled water, I rarely eat candy or drink soda, and I don't smoke! It's not like any of these things are essentials - people can live without junk food. And I feel that if it's harder to buy things that are bad for you, maybe we'd have a healthier population and wouldn't spend so much money on health care. That said, should the government implement a "vice" tax? Is it discriminatory?

What are your thoughts? Should we have to pay more for things we enjoy that aren't necessarily healthy? Should the government tax vices?


  1. It's extremely inefficient. Imagine the overhead for the merchants who have to track all these wierd separate taxes. All the money spent on computers, labor, etc. for tracking it is wasted (it could have been spent on something the merchant wanted, instead it goes to something they don't benefit from).

    These taxes are inherently unfair. If you want to stop people from getting fat, tax fat people. If you want to stop people from having bad health, let the health insurance companies charge thin people less (they already charge smokers more). And how is bottled water a "vice"? We recycle the bottles, and the cost of the bottle is included in the price already. Unlike, say, pollution, the act of consuming the candy bar isn't inherently problematic, it's the tendency of people who eat candy bars to be fat (and incidentally I think most studies show minimal correlation between price and bad food consumption, certainly true for cigarettes).

    It's not a good idea to think that they only tax things you don't use. They tax the heck out of liquor, they tax meals, etc., all at different rates - hugely inefficient.

    If the goal is to raise money, just raise taxes. The real goal of "vice" taxes like this is to hide the taxes, so people don't see how much they're actually paying in taxes. This is actually the reason for the Constitution's original limits on direct taxation, which was later repealed in order to bring you the income tax (and boy are we glad we have that!).

  2. That's so true, David - I hadn't even thought about how much extra work this puts on merchants ensuring that these extra fees get to the government.

    That is interesting about the price/bad food consumption correlation though. Food that isn't as healthy and more processed tends to be cheaper and more widely available. But if I want a candy bar, I'm going to buy it, regardless of if there's a 10% additional tax on it.