Last year, voters in Berkeley, California, approved a new tax on sugary drinks. That success has encouraged fans of taxing other “sins,” including your cherished liter of Evian.
“There are enormous environmental, social, and ethical costs associated with bottled water,” declared Laura Bliss in a recent piece for The Atlantic’s CityLab. “The public should be able to recoup them.”
Bliss defends her water tax with an eclectic mix of arguments, ranging from the esoteric (we need to correct for economic externalities) to the paternalistic (people are better off with tap water) to the moralistic (it costs too much). Whatever the merits of those arguments, two facts remain: Sin taxes are regressive and arbitrary. They do real damage to the tax system, and we are better off without them.
When Berkeley passed its soda tax, it was hailed as a victory for public health and a defeat for Big Soda. Ostensibly, the tax was designed to slow the obesity epidemic by discouraging bad beverage choices. Along the way, however, the soda tax is doing what most taxes generally do -- raising money. During its first month in operation, the levy raised $116,000 in new revenue. City officials expect it to raise about $1.2 million over the course of a year.
The Berkeley experience underscores the tension inherent in any sort of sin tax. When the tax is heavy enough to effectively curb consumption, it doesn’t raise a lot of money. When the tax is low enough to raise real money, it doesn’t do much to constrain purchasing decisions.
Supporters of the soda tax understand this problem. "What we really want to do, in 10 years, is collect no tax," said Berkeley City Council member Laurie Capitelli during a ceremony to celebrate the new revenue.
I don’t doubt Capitelli’s sincerity, but in the meantime, Berkeley is going to collect a lot of money using a very regressive tax. The moral case for taxing unhealthy products depends on their prohibitory effect, since there are other, much better ways to raise tax revenue. When a sin tax collects a lot of money, it’s set too low to accomplish its public health mission. And in that case, it’s just a cynical revenue grab dressed up in moralistic clothing.
I would be happier if politicians simply banned things they didn’t like – or at least tried to. At least that would be honest. Sin taxes, by contrast, are a sneaky way of curbing consumption by poor people who can’t afford to absorb the new tax – or siphoning money from these same poor people when they give in to temptation.
What goes for public health is also true for sin taxes designed to advance other social goals. Consider the case for taxing bottled water.
Bliss offers a hodgepodge of rationales for taxing water, from raising revenue to curbing pollution. She ends with a ringing call to arms. “We need to protect tap water as the public resource and human right that it is,” she declares. “Tax bottled water, use the money to upgrade our water systems, and change the country’s mind-set.”
In broad terms, I agree with most of Bliss’s points about bottled water. And for the sake of argument, I’m even willing to suspend my unhappiness with the inherent paternalism that lurks within any sin tax.
But the water tax still has two big problems.
1. The tax is regressive. Spending the new revenue on good and valuable things, as Bliss suggests, doesn’t make it any less regressive. Indeed, the wish list of new expenditures merely underscores the hard fact that boosters want to use tax money from poor people to pay for things they want. If you want to upgrade water systems, use a more progressive tax.
2. The tax is arbitrary. If you want to tax something because it's bad, you should be able to explain why you aren't taxing something else that's equally or similarly bad. Otherwise the tax is arbitrary.
The problem with soda taxes or water taxes or plastic bag taxes is that they are one-offs. Lawmakers single out especially visible items with a bad reputation and slap a tax on them. But they make no coherent effort to address the root problem by taxing other items that also cause problems. If plastic is the problem with bottled water, tax all plastic containers. Or all plastic.
Selective excise taxes – even when imposed on sinful or undesirable items – are unfair, inconsistent, and incoherent. They make a mockery of regulatory taxation, which can sometimes be a genuinely good idea. Taxing carbon, for instance, might really make the world a better place by aligning social costs with market prices on a broad range of items.
But most sin taxes are just a bad mixture of feel-good paternalism and opportunistic revenue extraction. They have no place in a sensible tax system.