Sin Tax: Impact on Consumer Behavior & Habits - Research Paper

Introduction

In the contemporary American context, government legislation continues to introduce bills that address the issues of taxation. A 'Sin Tax' is an example of legislation that has had a significant impact on consumer behavior and habit. The 'Sin Tax' refers to those taxation bills on products that have a negative health impact on the consumers (Hart & Ksir, 2011). The categorical definition of sin taxes covers products like cigarettes, alcohol, and sugary drinks. The incentives for sin taxation are to lower the consumption of these products, which can help improve the quality of health. Sin Taxes have a significant role in the health of the American people; however, they can hurt low-income earners (Lockwood & Taubinsky, 2017). Wealthy shoppers can easily afford the sin tax products, while the low-income earners will continue to suffer. The complex nature of the issues forms the background study of the following essay, which aims to investigate the impact of sin taxes concerning consumer impact.

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Introduction to the Sin Taxes and Effect on Consumer Behavior

The taxation on alcohol products and tobacco has been a central topic for discussion. These taxations have had mixed reactions from the public, some of whom have been the primary product consumers (Lorenzi, 2004). The American government has used the products to generate or increase revenue due to public spending. Many developed countries like the U.S increase the interest in using taxation on these sets of products. Some states also increase the tax on unhealthy products to gain public health objectives. The primary analysis point to understanding this issue develops from three central angles (Haavio & Kotakorpi, 2009). First, the U.S reduces the consumption of the targeted products that cause harm to the public. Second, they generate revenues with health incentives while distributing the tax burdens for income groups. This approach becomes effective and efficient when evaluated from an impartial viewpoint. The use of sin taxation is also politically sustainable continuing to generate economic stability.

Argument Against the 'Sin Taxes'

Health taxes are legislation on products meant to increase the manufacturing cost for the involved companies. Some of the taxations on the products also revolve on sensitive issues like distribution, retailing, and even consumption on the health-damaging commodities. In history, the American government has regulated alcohol and tobacco excise taxes. The recent debates on the sin taxes cover retailers and manufacturers on unhealthy products (Norton, Rucker & Lamberton, 2016). In the U.S., more regulation and emphasis is now on unhealthy foods that consist of sugar-sweetened beverages. A systematic review of the literature material proves that taxes on sugar-sweetened beverages have a positive impact on consumer behavior (Mill & Mayer, 2016). However, the high taxes on products like tobacco and alcohol have a minimal impact on consumer health. Instead, they increase in taxation adds fiscal revenues.

Sin Taxes tend to be easy to impose, favoring the revenue collectors like the United States government. Entertainment joints offer lucrative revenue-generating opportunities from gamblers, smokers, and even drinkers. Sin taxes tend to be paternalistic when evaluated from the broader economic context, to mean that they are not particularly cost-effective. The developing rationale is that the sin taxes do not happen to eliminate the behavior of the consumers. In many ways, the sin taxes only generate income revenue for government budgeting and spending but fail to pay for the societal costs ultimately (Young, 2015). The taxes are also subjective, just like any other harmful substance, which is not taxed. The stringent nature of the sin taxes even encourages the growth and development of the black markets, which are a favorite for the high-end consumers.

Argument for the 'Sin Taxes

Adam Smith continues to be a renowned scholar to offer an influential contribution to the world of economic science. Smith argued in 1776 that sin taxes on cigarettes, alcohol, and sugar were appropriate. According to the economic guru, these commodities were not essential but are widely a consumer's choice of preference. The words echoed by Smith prompted the government to start tobacco taxing during the Civil War period. Later in 1920, television commercialized was flocked by cigarette taxes, which doubled the advertising field (Rees-Jones, Rozema & National Bureau of Economic Research, 2019).

Initially, a cigarette cost was at $0.08 per single pack. However, after the taxes and ban, the prices increased to $0.39 per pack by 2002. This kind of trend would get a sin tax supporter to argue in favor of taxation. They would argue that they discourage unhealthy behavior, which includes smoking. Some may take the stand that they pay for societal costs since they are very popular with the average voter. The introduction of sin tax saw a drop in teenage smoking rates by about 10% in the year 2009 (Burman & Slemrod, 2013). The economic argument is that with a 10% increase in the cigarette tax, it is estimated that a nation would record the demand by about 4%. Such viewpoints support the lung cancer campaign, which is attributed to smoking, which leads to cancer deaths. The National Cancer Institute reports that lung cancer develops from smoking. A survey conducted by the institute revealed that about 90% of lung cancer cases develop from excessive smoking. A state like Kentucky has high tobacco users, which happens to be the leading state with cancer cases (Baugh, Ben-David, Park & National Bureau of Economic Research, 2014). Therefore, such a state is likely to support sin taxes primarily on harmful products like tobacco. The taxes also help states to deal with the public health consequence of detrimental behaviors like smoking and drinking.

Conclusion

To conclude, a sin tax is the excise tax on the harmful products that affect consumer health. The taxes are mainly implied when these commodities are manufactured, purchased, and even consumed. The two standard taxes are the federal sin taxes and the state sin taxes. The first one includes cigarettes, alcohol consumption, and gambling. The second one is the charge of gambling in different states. The sin taxes discourage the indulgent into the detrimental behaviors that have harmful health effects. The taxation on substances like alcohol and tobacco increases the cost of spending on these commodities. A government supporting the taxes builds hope on the incentive to challenge the people participating in the activity. Sin taxes seem to be popular but do not work to effectiveness. If the taxes would eliminate the behavior absolutely, then they would be rendered valid and receive public support. However, the reality is that they only influence consumer behavior, favoring the high-income earners while limiting low-income earners. In this view, the taxes do not help the government to pay for the harm that impacted society. The taxations are regressive in many capacities. They only emphasize the low-income earners to pay a very high percentage cost on their income.

References

Baugh, B., Ben-David, I., Park, H., & National Bureau of Economic Research. (2014). Disentangling financial constraints, precautionary savings, and myopia: Household behavior surrounding federal tax returns. Cambridge, Mass: National Bureau of Economic Research.

Burman, L., & Slemrod, J. (2013). Taxes in America: What everyone needs to know. Oxford: Oxford University Press.

Haavio, M., & Kotakorpi, K. (2009). The political economy of sin taxes. Munich: CESifo.

Hart, C. L., & Ksir, C. (2011). Drugs, society, & human behavior. New York: McGraw-Hill. Bottom of Form

Lockwood, B. B., & Taubinsky, D. (2017). Regressive Sin Taxes. Cambridge, MA National Bureau of Economic Research

Lorenzi, P. (March 01, 2004). Sin taxes. Society, 41, 3, 59-65.

Mill, A., & Mayer, D. A. (2016). Economics 101: From consumer behavior to competitive markets--everything you need to know about economics. Avon, Massachusetts: Adams Media

Norton, M. I., Rucker, D. D., & Lamberton, C. (2016). The Cambridge handbook of consumer psychology. Cambridge: Cambridge University Press.

Rees-Jones, A., Rozema, K., & National Bureau of Economic Research, (2019). Price isn't everything: Behavioral response around changes in sin taxes. Cambridge, Mass. : National Bureau of Economic Research

Young, R. A. (2015). Federal influence on innovation: Policy effects and proposals. New York: Nova Science Publishers, Inc.