“Sin Tax” and Healthcare Due to rising costs in healthcare, the U.S. Government is faced with the task of finding new ways to generate much needed revenue to cover healthcare expenses. One way of generating this revenue is by increasing taxes on items and activities that are considered to be “unhealthy,” like alcohol, tobacco, and legalized marijuana, in the form of “sin taxes.” Generating revenue through this form is considered to be a “win-win” because of the revenue generated and the cutback on “unhealthy” activities. Although, increasing “sin taxes” on these items may seem like a great idea, research has led me to believe that such increases might not be enough to solve the revenue shortage, and could be detrimental to the financial and physical welfare of low-income families. When considering the question if increasing “sin taxes” is the best solution to help fund the rising costs of healthcare, the moral issue is important to consider. Though, drinking and smoking are a personal choice, the effects associated with such activities can impact society as a whole. Such effects include diseases as a result of second-hand smoke, alcohol-related traffic accidents, and negative activity brought on by addiction. The preamble to our Constitution states that our government has an obligation to “promote the general welfare.” Therefore, the government has a responsibility to intervene on the public’s behalf in response to these negative effects. In an article on the ethics of “sin taxes,” Rebecca Green (2010) wrote that when an individual engages in behavior that is destructive to both self and others, the government may be justified in using paternalism, to require the person to “repay” and “self-improve,” in the form of sin tax. However, contradicting evidence shows that the effects of increasing sin taxes on alcohol and tobacco may be detrimental to low-income families, making the increase on the plea “for the greater good,” not entirely accurate. A chart on the share of income lost to alcohol and tobacco taxes by income level, found in a report published by the Washington Alliance for a Competitive Economy (2005), shows that lower income taxpayers pay a higher proportion of their income in alcohol and tobacco products, as opposed to higher income taxpayers. The result of increasing taxes on these items could leave the heads of low-income households with some serious decisions to make; like do we eat or pay the light bill, especially those who are addicts. Black (2006) stated, “In the fact of a sin tax hike, an egoistic or addictive head who controls the household budget may simply take money away from other members to maintain his own level of consumption and satisfy his addiction.” Black (2006) also raises the point that if an addictive head cannot afford to buy “quality” products, they may put their own health at risk by finding a cheaper replacement of “lower quality,” resulting in increased healthcare cost for the head, at the expense of the welfare of the other family members. With the negative effects of increased “sin tax” on low-income families established, and the issue of addiction discussed, household heads who are in search of cheaper alternatives, might result to purchasing products through the “black market,” rather than stopping the behavior altogether. Increased searching for cheaper products through the “black market” can increase criminal activity. According to the California Foundation for Commerce and Education study (Greenhut, 2013), increasing tobacco tax “may create the unintended consequence of increasing organized crime in California. Not only has cigarette smuggling been linked to increases in organized crime in California, but a press release found on the website TobaccoFreeKids.org International Edition (2009) discusses a part of the investigative series titled “Tobacco Underground” that has linked cigarette smuggling to at least six terrorist groups. Groups like al-Queda, the Taliban, and Real IRA have found cigarette smuggling to be a legitimate source for funding their activities due to high profits and ease at which cigarettes can be smuggled because of their small size and weight. President of the Campaign for Tobacco-Free Kids, Michael L. Myers (2009) said, “This report shows that curbing illicit trade is crucial not only for health and economic reasons, but also to protect national and international security.” The financial impact of the revenue to be generated by increasing sin tax to fund healthcare costs should also be discussed. Curtis Dubay (2009) stated that, “If Congress enacts sin taxes to pay for increased government spending, deficits will actually rise in the long run because these taxes inevitably raise less revenue than anticipated.” While research has shown that increasing sin taxes can result in an increase of revenue over a short term, whether due to decreased spending on tobacco and alcohol as a result of increased costs from tax increases, users in search of cheaper alternatives via smuggling, or individuals who make a conscious decision to stop consumption altogether, the result of spending cutbacks on items affected by sin tax will help to ensure that the revenue generated from sin tax will not be enough to cover rising costs in healthcare on a long term basis. A report by the Washington Alliance for a Competitive Economy (2005) states that healthcare costs are increasing at the rate of 10% a year, and the revenue generated from the long-term rate if sin tax is only around 5%. As a result of policymakers depending on revenue for sin tax increases to fund new programs, and the projected revenue not meeting the expectation needed to fund such programs, the government will be pressured to find other revenue solutions. The most common solution being other tax hikes. An article written by John Nothdurft (2009) states that a National Taxpayers Union study found, “Taxpayers face a seven out of ten chance of seeing another net annual tax hike within two years of a tobacco tax hike.” Policymakers should spend more time setting spending limits to help solve the government’s spending problem, and enacting sensible taxes, instead of raising sin taxes. After carefully considering the pros and cons related to the effects of increasing taxes on alcohol, tobacco, and legalized marijuana to fund increasing costs in healthcare, I am not convinced that increasing these taxes is the best solution. This decision is based upon the projected impact on low-income households, increased probability of crime due to smuggling, and the fact that revenue generated will not keep up with the increasing costs of healthcare. The gap in revenue alone would be cause to look for other ways to fund healthcare costs. It is my belief that increasing sin taxes would be a short-term fix at best; like putting a Band-Aid on a large wound caused by our government’s overspending.
References
Black, P. A., Mohamed, A. I. (2006).’Sin’ taxes and poor households: Unanticipated effects. South African Journal of Economics, 7(1), 131-136.
Dubay, C. S. (2009). Sin taxes on soda, alcohol, and cigarettes: Congress’s latest vices (Memo No. 2635). Washington D.C.: The Heritage Foundation.
Green, R. (2011). The ethics of sin taxes. Public Health Nursing. 28(1), 68-77.
Greenhut, S. (2013).Sin tax hike could boost black market. Retrieved February 2, 2015, from www.Reason.com.
Nothdurft, J. (2009). Research & commentary: top ten reasons not to raise tobacco taxes. Retrieved February 5, 2015, from www.heartland.org.
Investigative reports find growing ties between cigarette smuggling and terrorist organizations. (2009). Retrieved February 5, 2015, from www.TobaccoFreeKids.org.
Wallowing in sin taxes. (2005). (Special Report No. 05.05). Washington D.C.: Washington Alliance for a Competitive Economy. Washington Research Center Council.
