Sin Taxes: Definition, Pros & Cons

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  • 0:01 Definition of Sin Tax
  • 1:10 Pros of Sin Taxes
  • 2:25 Cons of Sin Taxes
  • 4:03 Lesson Summary
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Lesson Transcript
Instructor: Aaron Hill

Aaron has worked in the financial industry for 14 years and has Accounting & Economics degree and masters in Business Administration. He is an accredited wealth manager.

Learn about what sin taxes are and how you might be paying them without even realizing it. Find out why these taxes are used and the common arguments for and against them.

Definition of Sin Tax

Would you give up buying your favorite soda or daily cup of coffee if you knew you were going to have to pay 10% more for it? Does paying extra taxes on alcohol or tobacco seem right to you? Regardless of where you stand on these questions, the fact is that countries and state governments are constantly proposing legislation and adding additional taxes to things like alcohol, gambling, soft drinks, coffee, and tobacco. If you enjoy some of these so-called 'vices,' just be ready to accept the fact that you are most likely paying an additional amount of money to do so.

Sin taxes are usually state-imposed taxes that are added to products or services that are viewed as unhealthy, not necessary for basic needs, or morally questionable. For the government, sin taxes appear to be a win-win. In placing additional taxes on products, such as alcohol, gambling, soft drinks, coffee, and tobacco, they hope to increase revenue for their budget while simultaneously discouraging the use of these goods or activities. With states currently struggling to increase revenue, sin taxes are usually an easy target for politicians looking to help balance the budget.

Pros of Sin Taxes

Sin taxes may help to promote a healthier society. The logic is that by making it more expensive to engage in unhealthy activities, such as smoking or excessive alcohol consumption, less people will do it or at least not do it as often. As a result, people will have lower chances of dying from lung disease, liver disease, and other health complications brought on from these products.

These taxes are often more acceptable over other types of taxes. Since not everyone enjoys or participates in smoking tobacco, gambling, or drinking alcohol, it is much easier for the general public to accept these taxes since they may not be taxed, and it won't affect them. In general, the public realizes the dangers in many of these products or services, and it morally seems more acceptable to tax them as compared to other vital goods, such as food, milk, or vitamins.

They can increase government revenue. These taxes can often raise huge sums of money that can go towards education, better roads, parks, and other special projects for communities. In 2012, Missouri casinos provided more than $30 million dollars for state early childhood education and college programs.

Cons of Sin Taxes

Some feel that sin taxes are a form of personal discrimination. Those who are against sin taxes believe that they should be allowed to make their own personal decisions regarding what 'vices' to consume or not consume and that these activities really have no material negative consequence on the general public. Therefore, they should not have to pay special taxes for certain goods, and the government should not meddle in their daily affairs.

Some people also feel the lower income class suffers. Many argue that sin taxes hurt the poor more than high income individuals. An extra dollar tax on a pack of cigarettes eats up a higher percentage of income for a low-income individual than it does for a wealthy person.

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