An excise tax on those goods that elected officials deem morally suspect has come roaring back. But the temptation to impose sin taxes is one that should be resisted for economic and moral reasons.

Dramatically expanding the reach of the federal government by adding new "universal" entitlements, while at the same time pretending to manage the economy out of the pit of a severe economic downturn, is no mean feat. Which is why the sin tax, an excise tax on those goods that elected officials deem morally suspect, has come roaring back.

On May 18, Politico reported that the Senate Finance Committee was looking for ways to pay for President Barack Obama’s "sweeping health reform overhaul" by "slapping an excise tax on ‘sugar-sweetened beverages’ for the first time, and imposing a uniform tax across wine, beer, and liquor, which are currently taxed at different levels." According to the Congressional Budget Office, a tax of 3 cents per 12-ounce serving of soft drink (like the 18 percent tax on sugary drinks that New York Gov. David Paterson recently failed to push through) would generate $24 billion over four years.

What’s behind this is the notion that sugary soft drinks are one of the chief culprits of a national epidemic of obesity. According to the Centers for Disease Control and Prevention, obesity rates doubled among adults between 1980 and 2000. About 60 million adults, or 30 percent of the adult population, are now obese.

The elite media, liberal think tanks, and academic researchers are already building a case against Big Food for its scarlet sins: sweetened drinks, fatty snacks, alcoholic beverages. You know what’s coming next: a wave of punitive government regulation and scores of lawsuits aiming to shake down the nation’s vast food and beverage industry. It’s the same strategy developed for the assault on the tobacco industry—tax the bad stuff out of existence. Today, in New York City, the price of a pack of cigarettes now tops $9 (each pack now carries $5.26 in taxes), which makes the city one of the most expensive places in the country to smoke.

The evidence that sin taxes are a failed policy approach is incontrovertible.

Never mind if you have freely chosen to smoke a cigarette or drink a cold Coke on a hot summer’s day and, mirabile dictu, you take responsibility for your actions. The New Puritans who are ready to dramatically expand the welfare state and limit personal freedoms claim to know what’s best for you.

The sin tax seems like a convenient ploy when the state is searching for new sources of revenue in fiscally tight times. A sin tax also appeals to some voters who view it as a way of discouraging consumption of certain objectionable products. Yet the temptation to impose sin taxes is one that should be resisted for economic and moral reasons. The consequences of the sin tax are often the very opposite of those intended by its designers. Rather than increasing revenue, the sin tax can reduce it. Rather than discouraging what are regarded as morally questionable behaviors, the sin tax can make them more appealing. Rather than reducing what are perceived to be internal costs of the sin, the sin tax can increase them and expand them to society as a whole.

The evidence that sin taxes are a failed policy approach is incontrovertible. According to a new report from the Mercatus Center, "taxes on sugar-sweetened soft drinks do not necessarily advance the overall public interest, may be regressive in nature, and hardly ever work as intended." The bottom line, say researchers Richard Williams and Katelyn Christ, is that a convincing body of evidence tells us that boosting food and drink prices "is not sufficient to make ‘fat taxes’ a viable tool to lower obesity." That’s because soft drinks are really a small portion of most people’s diets.

The Mercatus report also points to something that all taxpayers should be aware of: secretive revenue shifting by those levying the tax. Williams and Christ point to an Arkansas soft drink tax passed in 1992 that was supposed to pour money into the state’s Medicaid program. However, when there was an attempt to repeal the tax, taxpayers discovered that policy makers were diverting the revenue to the general fund. It happens time and again.

It’s ironic that the very advocates of sin taxes are those often heard, in other contexts, making comparisons between religious conservatives and the Taliban while insisting that the government ‘keep your laws off our bodies.’

Yet, the advocates of new sin taxes to support a growing American welfare state go heedlessly marching on. In Senate testimony on May 12, Michael F. Jacobson of the Washington-based Center for Science in the Public Interest asked for "strong, specific prevention measures" to cure obesity, including raising taxes on alcoholic beverages, taxing soft drinks, and banning trans fats. He asked Congress to impose an excise tax on non-diet soft drinks, both carbonated and non-carbonated. A tax of one cent per 12 ounces would raise about $1.5 billion annually; a tax of one cent per ounce would raise about $16 billion per year, reduce consumption, and slow rising rates of obesity, he testified. Each penny tax per 12 ounces would reduce consumption by about 1 percent, Jacobson claimed.

In "Blaming the Food Industry for Obesity," BusinessWeek blogger Cathy Arnst recently reported that "two new studies conclude that the food industry is following the tobacco industry’s play book to ensure that we keep loading up on calories, and as a result virtually all of the weight gain in the U.S. over the last 30 years can be attributed to eating more, not moving less."

Arnst also quotes a study by two university researchers who tipped their hand when they titled their work: "The Perils of Ignoring History: Big Tobacco Played Dirty and Millions Died. How Similar Is Big Food?" Researchers Kelly D. Brownell and Kenneth E. Warner concluded that although there are differences between tobacco and food (a startling insight for sure) there are "significant similarities in the actions that these industries have taken in response to concern that their products cause harm. Because obesity is now a major global problem, the world cannot afford a repeat of the tobacco history, in which industry talks about the moral high ground but does not occupy it."

Rather than increasing revenue, the sin tax can reduce it. Rather than discouraging what are regarded as morally questionable behaviors, the sin tax can make them more appealing.

Brownell and Warner also grudgingly acknowledged that personal responsibility and freedom are values cherished by Americans, but "they obscure the reality that some of the most significant health advances have been made by population-based public health approaches in which the overall welfare of the citizenry trumps certain individual or industry freedoms." In other words, the government knows better than you do how to feed and raise your children.

Who, or what exactly, is Big Food? Brownell and Warner observe that, unlike the tobacco industry, the food industry is larger and more fragmented. If you are a trial lawyer looking for new and bountiful vistas of tort action, Big Food must look extremely tempting:

The industry is diverse and fragmented in some ways, counting as its players a local baker making bread for a few stores; a family running a convenience store; an organic farmer; mega companies like Kraft, McDonalds, and Coca-Cola; and even Girl Scouts selling cookies. The same company making fried foods laden with saturated fat might also sell whole-grain cereal.

In other ways, the industry is organized and politically powerful. It consists of massive agribusiness companies like Cargill, Archer Daniels Midland, Bunge, and Monsanto; food sellers as large as Kraft (so big as to own Nabisco) and Pepsi-Co (owner of Frito Lay); and restaurant companies as large as McDonald’s and Yum! Brands (owner of Pizza Hut, Taco Bell, KFC, and more). These are represented by lobbyists, lawyers, and trade organizations that in turn represent a type of food (e.g., Snack Food Association, American Beverage Association), a segment of the industry (e.g., National Restaurant Association), a constituent of food (e.g., Sugar Association, Corn Refiners Association), or the entire industry (e.g., Grocery Manufacturers of America).

It must be noted that there is a certain irony in the fact that some of the very advocates of sin taxes are those often heard, in other contexts, making comparisons between religious conservatives and the Taliban while insisting that the government "keep your laws off our bodies."

It’s time to stop this nonsense. Whatever economic or social benefits one can dream up from the sin tax, we must also realize that the decision to tax must be weighed against the social benefits for reducing the behavior by slow and deliberate persuasion and voluntary action. When it comes to public policy, the preferred method of discouraging sin should fall under the category of alternative, mediating institutions, notably family, church, and school. That would leave government officials more time to focus on the sins they can really do something about—their own.

Rev. Robert A. Sirico is president and co-founder of the Acton Institute.

Read the article on the American Enterprise Institute website
Posted: 22-May-2009