Sin Taxation: Legal, Economic, and Moral Justifications - Essay Example

Yet the temptation to impose taxes is one driven by economic reasons and has proven to be very lucrative and worthwhile. In 2010, the government increased its revenue by over $75 billion through sumptuary taxes. As a result, sumptuary taxation is quickly becoming the tax of choice among federal and state authorities and has even gained approval from many taxpayers. Its popularity appears due not only to its money-making abilities but also to its dual purpose. First, it is an efficient way for the government to collect revenue from taxpayers for something they can and probably should live without. Second, unlike other taxes, sumptuary taxes are often enacted with the additional aim of reducing or eliminating the public’s consumption of a particular product. Although economists doubt that sumptuary taxes will greatly affect the behavior of most individuals, especially because the amounts tacked on are quite small, these taxes are an effective source of revenue. Because they attach to the sale of items that some taxpayers will buy no matter how much they cost they make the supply and revenue stream of these items inelastic. As an added social benefit, some of the revenue can go toward funding programs that promote a healthy lifestyle.

Part two briefly reviews the history of sumptuary law and the evolution of the sin tax. This part discusses how sumptuary taxes have emerged into different categories, and examines how the government uses these taxes to generate revenue and fill in their budget gaps. Additionally, part two examines how other countries have successfully levied the different sumptuary taxes to benefit their society as a whole; it also argues the economics of sin taxes is an effective source of revenue because they attach to the sale of items that some taxpayers will buy no matter how much they cost, making them inelastic. Part three analyzes the rationale and public policy in support of sin taxes and raises counterarguments. Additionally, part three addresses the conflict of interest created by a state’s dependence on sin tax revenues and briefly examines a resolution, i.e., earmarking, to mitigate the conflict. Lastly, this paper concludes with how sin taxes are important and why they will benefit society as a whole.  

There is a sound tax policy in implementing sin taxes and placing them on indulgences. Indeed, much of society would agree that you have to "pay to play." Sin taxes have become a popular remedy for states as they deal with budget deficits. Because they are viewed as a discretionary tax (only paid based upon actual use), governmental decision-makers often view increasing them as the path of least resistance among voters. In effect, sin taxes are taxes that are absorbed in the purchase price of an item, as compared to a sales tax, which is paid above the purchase price. They are flat, in that everyone who purchases the item or service pays the same tax regardless of income. There are several justifications for sin taxes, including that demand for harmful products is relatively inelastic and therefore a stable source of revenue, and that the price increase caused by taxing the harmful product reduces its consumption and encourages a healthier lifestyle. Equally important, sin taxes force users of harmful products to internalize the cost of those products rather than spread it across society; therefore, everyone who buys these products pays these taxes, regardless of whether they pay income taxes. Moreover, these taxes can be used to subsidize or fund a special project, at the same time that they discourage the consumption of the targeted vice. Thus, through sin taxes, the government can boost its revenue and reduce the negative impact of these vices in the community.

The tax system is a proven method for raising revenue to finance the goods and services that the government provides and taxpayers enjoy and use. Indeed, "Taxation aims to reduce private consumption and private investment so that the government can provide social goods . . . without causing inflation or balance of payment difficulties." Historically sin taxes were called sumptuary taxes. Sumptuary taxes (Sumtuariae Leges in Latin) date back as far as the ancient Greeks and Romans, who used sumptuary laws as a form of governance. However, through the centuries these laws have evolved. Through sumptuary laws, the Romans attempted to regulate habits of consumption to restrain luxury or extravagance, particularly inordinate expenditures on apparel, food, and furniture. The tax thus reinforced social hierarchies and morals. The Greeks used sumptuary laws specifically to curb conspicuous consumption at funerals by regulating their size and the value of food that could be served at them. Indirectly but deliberately, this also restricted the role of women at funerals. Women were limited to three mourning shawls and were forbidden to wear any kind of make-up or perfumes. In England during feudalism, sumptuary laws were similar to those in ancient Greece, targeting conspicuous consumption, though not specific to funerals, in matters of dress and ornamentation. It was clear that sumptuary discourse was closely linked to the discourses surrounding ‘luxury,’ which itself exhibited a close interweaving of economic and theological controversies.