Why Sin Taxes Are Not For Your Own Good

Oct 5, 2018

The cover of 'For Your Own Good: Taxes, Paternalism, and Fiscal Discrimination in the Twenty-First Century.'
Credit Courtesy of Todd Nesbit / Mercatus Center at George Mason University

Selective taxes on items like cigarettes and alcohol are often imposed by the U.S. government to help consumers make better choices. But according to economist Todd Nesbit, these so-called “sin taxes” can have unintended consequences that thwart this mission.

Nesbit argues that selective taxes, which more recently have expanded to items like sugary sodas and plastic bags, are ineffective and lazy policy. Nesbit is an assistant professor of economics at Ball State University and the co-editor of “For Your Own Good: Taxes, Paternalism, and Fiscal Discrimination in the Twenty-First Century” (Mercatus Center at George Mason University/2018).

He talks to host Frank Stasio about the political theory behind these taxes. Nesbit will be at Campbell Law School in Raleigh on Monday, Oct. 8. He will be at Wake Forest University on Tuesday, Oct. 9 and at the Center for the Study of Free Enterprise at Western Carolina University in Asheville on Wednesday, Oct. 10. On Thursday, Oct. 11, he will be with the Bastiat Society the Sugar Creek Brewing Company in Charlotte.


Nesbit on one of the unintended consequences of cigarette taxes:

We have these very large tax differences across state lines, and so a lot of folks are part of these organized syndicates where they are buying mass quantities in low tax states — primarily Virginia now, but historically North Carolina has been a primary source state as well — and transporting them up to these higher taxing districts and reselling them illegally in legal markets.

A different option for policymakers who want to discourage certain behaviors:

The taxes haven't worked. Bans haven't seemed to work. Let's try the carrot instead, possibly. Certainly providing carrots — so having various programs to encourage smoking cessation … Maybe here's this $500 or $1,000 at the end of the program if you have been able to provide evidence that you have stopped smoking — that may work a lot better than just trying to impose these taxes on folks.

On how future policies could be changed:

We don't have the solutions. Clearly we haven't developed the solutions in the public policy sphere in terms of how to address these problems the best, because they have failed time and time again. And so having these types of policies at the local level, allowing each locality to enact their own policies — tax policy and programs to reduce smoking or any other activity — that's where we’re going to have more experimentation. There will be somebody that ultimately has a success, and then the others ultimately can learn from that.