TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, December 4, 2012

Should Sin Taxes Be Part of Fiscal Cliff Revenue Solution?

Fat TaxMore Thoughts About Taxing Unhealthy Behavior:

Depending on who you believe any long term solution to the fiscal issues confronting the United States will include revenue increases of 800 billion to 1.6 trillion dollars over the next 10 years. From what I can tell almost all of the discussion about how to raise that revenue focuses on what the well-off will pay. Will their income tax rates be higher, will their deductions be lower, and will the tax code be revamped so that things like capital gains are taxed at a higher rate?  As someone interested in public health it seems to me that the revenue, and more importantly behavioral changes, associated with sin taxes should be considered in this debate.

  • The Congressional Budget Office estimates that nearly $80 billion could be generated over the next 10 years by increasing the tobacco tax by about 50 cents per pack.
  • Obesity researchers and economists from Yale and the University of Illinois Chicago have modeled the effects of a 1 cent per ounce tax on sugary beverages and estimated that nearly $20 billion per year could be generated ($200 billion over 10 years).
  • The alcohol tax as a percentage of the total cost of various forms of alcoholic beverages is much lower than it was in 1980. If the alcohol tax was 30% of the pretax value of the beverage (it is currently about 10%), a study by the Cato institute estimated that federal revenues would increase by $25 billion per year ($250 billion over 10 years)
  • Demark recently repealed their so-called fat tax. It was generating about 200 million per year in taxes on high fat foods for the Danes. Extrapolate that to the U.S. which has about 60 times the population of Denmark and you get about $12 billion in revenue per year or $120 billion over 10 years.

All of this adds up to about $650 billion dollars of increased revenue over ten years. Additionally, there is pretty good evidence that smoking rates, health problems associated with excessive drinking, and perhaps even obesity rates might fall if these taxes were enacted.

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