Essay about Sin Taxes

5069 Words Jan 22nd, 2013 21 Pages
POLS 5440 Principles and Processes of Government Budgeting | Sin Taxes, Good or Bad? | An Examination of the Use of Sin Taxes in the United States |

By: Stacy Madden4/27/2012 |

Executive Summary Historically sin taxes have been an effective and efficient way for the government to raise revenue. The federal government used tariffs and consumption taxes to generate almost all of its revenue in the early years of our nation. The tax structure and philosophy has evolved and changed since the beginning of our nation, however the use of sin taxes has remained a good way for governments to raise revenues. Sin taxes no longer provide a significant portion of federal or state governments; however they do provide a consistent
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Most commonly, sin taxes are excise or consumption taxes that charge fees for guilty pleasures or human indulgence. (Lorenzi, Sin Taxes 60) Sin taxes, therefore, are intended to encourage citizens to consume or use taxed items responsibly or discourage behavior associated with the consumption of taxed items. Goods or services generally taxed through sin tax policy have some common characteristics including inelastic demand, promote behavior that is harmful to the individual, and promote behavior that is harmful to others. (Lorenzi, Sin Taxes 60) Goods or services targeted by sin taxes have an inelastic demand because they are generally habitual, addictive, or highly pleasurable. (Lorenzi, Sin Taxes 60) Further, these goods or services are targeted by sin tax legislation because consuming or utilizing the good or services can lead to self-destructive behavior, negative consequences for communities, and generally are considered socially undesirable. Thus, sin taxes are not prohibitive; citizens are allowed to consume targeted goods and services as long as the tax is not steep enough to make consumption of the good or service impossible. (Viscusi 556) Further, the voluntary nature of sin taxes is generally more tolerable than involuntary nature of income taxes. (Schmidt, Barr and Swanson 1677) The most confusing and controversial element when considering sin taxes is the definition of sin.…