‘Sin taxes’ mostly hit those who can least afford them, study finds

  • “Sin taxes” are mostly paid by those who struggle most economically, according to a new newspaper.
  • Only 10% of households pay about 80% of taxes on goods like alcohol, cigarettes and sodas.
  • Many in this group come from the lowest levels of education and income, the researchers found.

“Sin taxes” have helped wean the United States from certain bad habits. They are now leaving a small group of less-educated, low-income Americans with most of the bill.

The United States has a long history of taxing vices, with Alexander Hamilton proposing to tax alcohol in the Federalist Papers. Today, these sin taxes cover goods like alcohol and tobacco as well as more modern indulgences like soda. Modern sin taxes aim to raise the price of unwanted goods and services, driving consumers away to improve overall public health.

They are also growing. The median cigarette tax has more than quadrupled from 2000 to 2021, and House Democrats proposed doubling the federal cigarette tax in their 2021 reconciliation filing.

Still, raising sin taxes may not be the easy revenue stream politicians hoped for. According to an article by economists Christopher Conlon, Yinan Wang and Nirupama Rao published by the National Bureau of Economic Research, only 10% of households account for 80% of sin tax revenue. Taxes may not target specific income groups, but the people forced to pay them are largely those who can least afford them.

“To say ‘sin taxes are regressive’ or ‘sin taxes are progressive’ largely misses the point,” the team said. “There is much more variation between households within income groups than between them in purchases of sin goods.”

The group studied groups of people who pay the most sin taxes, ranging from those who spend only on alcohol, cigarettes or sugary drinks to those who spend on all. Households in the “everything” and “smoking” groups already pay 1.5% to 2% of their annual income in sin taxes, according to the document. They are also much more likely to come from the lowest income and education levels, as well as the 55-64 age bracket.

Those two groups alone pay 68% of the nation’s sin taxes, but they make up just 8% of U.S. households, according to the newspaper. Before raising tax rates, policymakers should consider whether higher rates would actually reduce purchases of these goods, or if they would simply put an even greater economic drag on an already disadvantaged group, the report said. ‘team.

Heavy drinkers pose another sin tax problem

The paper also noted that not all sin tax payers are low-income or poorly educated. According to economists, the group of non-smoking “heavy drinkers” is disproportionately made up of people in the highest income and education groups.

Yet the habits of this group create another problem for policy makers. The cluster and the “everything” group should be the source of the most external harms like drunk driving or domestic violence, because alcohol consumption is closely linked to these negative events. Simply put, the idea is that higher taxes on alcohol lead to lower levels of consumption, which should have fairly good social outcomes.

But targeting alcohol taxes is a little trickier than taxes on other vices. While heavy drinkers tend to buy alcohol in many forms, those in the “everything” group tend to buy mostly wine and beer.

The diversity of sources of alcohol purchased by heavy drinkers puts a damper on policymakers’ goal of reducing consumption, the team said. The government’s policy of taxing distilled spirits at a higher rate than beer and wine might work in areas where the heaviest drinkers mainly buy spirits, but the policy is much less effective in areas where they will buy spirits. alcohol in various forms. It also makes it harder to raise sin taxes on products favored by those most likely to cause external harm, they added.

Raising sin taxes is therefore not as simple as politicians often make it out to be. The policies only affect a small portion of the American population, and many in this group face overlapping burdens due to a variety of sin taxes. And while they were created to reduce dangerous behavior, loopholes in policy could prevent taxes from achieving that goal.

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