Study: More ‘sinners’ paying more ‘sin’ taxes

Posted By M.D. Kittle On February 5, 2013 @ 4:59 pm


I’M SUPPORTING THE ARTS! Sin taxes start out punishing unhealthy behavior, end up subsidizing unrelated activities, a new study shows.

By M.D. Kittle |Wisconsin Reporter

UPDATED VERSION:11:26 p.m. 2/6

MADISON – Sin is in, and fat is where it’s at — when it comes to taxes.

Aiming to make American consumers break bad habits, governments across the land of the free are levying a wider array of “sin taxes.”

From cigarettes to sex to soft drinks to bacon, specialty taxes are generating tens of billions of dollars, much of it used to plug budget holes and a host of general purpose items.

“It’s kind of the same story we’ve seen with other taxes over time: When they are implemented they can appear somewhat harmless,” said Adam Hoffer, assistant economics professor at the University of Wisconsin-La Crosse and co-author of Sin Taxes: Size, Growth, and Creation of the Sindustry [2],” a new study by the Mercatus Center [3], a free-market research organization at George Mason University.

Take, for instance, the soft drink tax binge. It’s bigger than New York City Mayor Michael Bloomberg’s war on big gulp sodas [4]. Today, 33 states have a soft drink tax. Many began with nominal 1-cent to 5-cent taxes, Hoffer said. But sin taxes have a way of rising.

“It’s the same thing with income tax; it becomes a lot easier over time to hike them,” Hoffer said.

Wisconsin doesn’t levy a sugary drink tax – yet.  But the Badger State ranks low and high in the typical sin taxes.


A new study by the Mercatus Center notes “sin” taxes on smoking, drinking, soft drinks and more are rising to meet growing government budget needs.

Wisconsin, in a tie with Missouri, boasts the lowest tax nationally on beer, [6] at 6 cents per gallon, and charges a tax of $2 per gallon on spirits, among the lowest liquor taxes in the country, according to 2011 data.

At $2.52 a pack [6], Wisconsin has the eighth-highest cigarette tax. Hoffer said the hike turns the World War II-era slogan, “Smoke ’em if you got ’em,” on its ear.

“Smoke ’em if you can afford ’em,” the economist quipped.

And in large part, that’s supposed to be the idea of such sin taxes, particularly taboo tobacco use: Pumping up prices so high that you drive away the buyer and cripple the market. The proceeds, too, are supposed to be marked to cover exorbitant health care costs related to tobacco, alcohol and other sinful products that are crippling the U.S. health care system.

The Mercatus report asserts sin taxes are, for the most part, accomplishing neither.

Sin taxes have become nearly as addictive for governments as the taxable products, the study suggests.

“The temptation for states to use selective excise taxation is politically irresistible since the revenues generated in such ways can be reallocated to the public treasury, while some taxpayers, who are portrayed as imposing costs on society at large, are penalized,” the study states.

Case in point, Wisconsin’s use of a Big Tobacco lawsuit settlement and the cigarette tax money.

Wisconsin was one of 46 states that received a combined $206 billion in the late 1990s Master Settlement Agreement [7]. The Badger State was awarded $5.2 billion over 25 years. But when budgets tightened early last decade, then Gov-Scott McCallum securitized the payout and the state received a lump sum payout of $1.6 billion. The money helped solve the state’s budget crisis — until the next budget crisis.

“That money is gone, and now the cigarette tax is the only source” for the existing Tobacco Control and Prevention Program [8], said Dona Wininsky [9], director of public policy and communication for the American Lung Association – Wisconsin [10].

The Control and Prevention Program, Wininsky said, is at its lowest funding level in the history of the program, at about $5.3 million per year. Meanwhile, the state takes in about $600 million in cigarette taxes annually, the brunt of that money going for a host of other, non-tobacco cessation and care-related programs.

“We are not a pro-tax organization, although we recognize high prices reduce smoking,” Wininsky said. “But if you’re going to tax smokers, you need to provide the services to help them quit.”

The American Lung Association isn’t calling on a cigarette tax increase in Wisconsin this session, but it does seek parity in tobacco taxes.

Wininsky said higher taxes drive down consumption, pointing to oft-referenced statistics that indicate for every 10 percent increase [11] in the price of a pack of cigarettes there is a corresponding 4 percent reduction in adult smoking, and a 7 percent drop in youth smoking.

The Mercatus Center study [12], however, disputes the efficacy of higher taxes, charging that the vast majority of the poor, the ones hit hardest by the tax, don’t stop using the disfavored product.

“If the goal is to convince people consumption is not a good idea, taxation is not a good route,” Hoffer said. “Most of the people keep paying the higher taxes to buy the product.”

Ultimately, Hoffer said, those spending choices not only hurt the individual but hurt the economy at large. Arguably, the consumer, strapped for cash, puts more of the scant discretionary income he has into cigarette or alcohol consumption.

Wisconsin’s taxing structure, may, in part, argue against the study’s assertion. Wisconsin has long ranked among states with the lowest taxes on beer and spirits while it consistently posts the highest drunken driving rates in the nation.

But sin taxes attack so much more than booze and smokes these days. [13]

The Mercatus Center study found 21 states have taxes on vending machine items, such as gum, potato chips and milkshakes. Four states have levied a special tax on ice cream. Florida and Maryland have each imposed a 6 percent tax on Popsicles.

Utah, meanwhile, has a skin tax, accessing a 10 percent fee on establishments where “nude or partially nude individuals perform any service.”

There’s big money to be had from the Sindustry, the study reports — $5 billion in beer taxes alone, and another $15.5 billion in cigarette taxes, as of 2007, the latest data available.

The bottom line: the taxing industry is good, Hoffer says. So don’t expect any relief, sinners.

The bigger problem, the study asserts, is that escalating taxes aren’t changing behaviors.

“We all want a healthier population, economic growth and prosperity, but the approach and what the data tell us, the methods we’ve been trying don’t work,” he said.

The ambiguity of sin taxes provides wide room for abuse by opportunistic special-interest groups, the study asserts, raising questions of fairness.

“If taxes on ‘sins’ are justified because they plausibly generate negative health outcomes, then a tax could — and therefore should — be levied on all goods and activities that negatively affect human well-being,” the study posits.

“Where does the ‘should’ end? Why not impose taxes on all goods containing the wrong kinds of fat or cholesterol? What about excessive consumption of sodium? What about watching television, playing video games, or even reading a book? Those activities primarily are conducted while sitting down, staying indoors, and, hence, may impair one’s health. What about hang gliding, mountain climbing, or riding a motorcycle or bicycle, especially while not wearing a helmet?”

Contact Kittle at

*An earlier version of this story stated Wisconsin’s beer and liquor taxes were among the highest in the United States. Those taxes rank among the lowest.

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[2] Sin Taxes: Size, Growth, and Creation of the Sindustry:

[3] Mercatus Center:

[4] Michael Bloomberg’s war on big gulp sodas:

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[6] boasts the lowest tax nationally on beer,:

[7] Master Settlement Agreement:

[8] Tobacco Control and Prevention Program:

[9] Dona Wininsky:

[10] American Lung Association – Wisconsin:

[11] 10 percent increase:

[12] Mercatus Center study:

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