Economics

Sin Taxes: Revenue, Paternalism and Political Interest
By Adam J. Hoffer, William F. Shughart II, and Michael D. Thomas

Introduction
Revenue shortfalls associated with the Great Recession and the slow recovery that
followed have placed the budgets of many US state and local governments under heavy stress.
In the past several years, lingering economic troubles eroded governmental tax bases while
voters remained strongly resistant to proposals for cutting public spending or raising broadbased taxes. This has left many states searching for new revenue sources. Particularly attractive
targets for “revenue enhancement” are goods deemed by policymakers to be unhealthy, to
generate negative externalities, or both. Historically, consumer goods such as tobacco, alcohol,
salt, stamps, tea, and motor fuels have been singled out for selective excise taxation.1
Recent additions to the sin tax category are foods that are high in sugar, trans fats, and
other ingredients the public health establishment has associated with rising incidences of
obesity,2 type 2 diabetes, and similar so-called epidemics. Indeed, 33 states already have
implemented a soft drink tax. Because public health expenditures are correlated with the
consumption of these goods, a case has been made for the selective taxation of all sugar

1

An excise tax is a per-unit tax levied on a particular good. It is not the same as an ad valorem tax, which
is levied as a percentage of the value of the good sold. Ad valorem taxes, such as a general sales or
payroll taxes, also often are levied on much broader tax bases.
2
But see Flegal et al. (2012, 71–72), who conclude, based on a meta-analysis of 97 published studies, that
“grade 1 obesity,” defined as a body mass index (BMI) between 30 and 35, “overall was not associated
with higher mortality, and overweight [BMIs between 25 and 30] was associated with significantly lower
all-cause mortality.”

1

sweetened beverages (SSBs), junk food,...