A sin tax is a tax on certain goods or activities that are perceived negatively by many people. It’s common to think of alcohol and tobacco as subject to high taxes, and in part, the revenue gained from these taxes helps to offset some of the negative effects they can cause like health problems. Such taxes are not new and have a rich history in the world. Oftentimes while they raise revenue, they’re also designed to discourage use, though this is not entirely effective.
In the past, the sin tax has been called by other names like sumptuary tax or sumptuary law. These laws were meant to keep people from behaving in certain ways because it was more expensive. Despite this goal, a sumptuary law tended to be a dividing force in society, making access to certain deplored goods or services inaccessible to lower classes, while turning use of goods and services by more wealthy individuals into something of a status symbol. Additionally a sumptuary law could certainly give the appearance of hypocrisy, as for example taxes levied on prostitution that were collected by popes as part of their support.
Another name for a sin tax is a Pigovian tax, though this term is a little specific to certain taxes placed on some markets. If a market has what are called negative externalities or negatives effects on consumers such as drunk driving accidents, lung cancer, or heavy pollution, taxes placed on the markets or what they sell may reduce negative externalities. A higher tax may discourage consumption and reduce those negative effects that create worry and concern.
Some people would additionally define a sin tax as a luxury tax. In some definitions, outward displays of luxury like the purchase of an expensive car or airplane, or staying in very expensive vacation locales is justifiably taxed. It’s not that use is discouraged so much in these instances, but more that people who plan to spend a lot of money for luxury can certainly afford higher taxes on it. Yet, some view deliberate displays of conspicuous consumption as borderline sinful.
What each region considers a sin tax may vary. Alcohol and tobacco are common targets, but so are activities like legal gambling and prostitution. Some argue that taxation does not have a beneficial effect and instead results in increase of illegal activities. There may be more interest in gambling, smoking or bartering with prostitutes when people don’t have to pay additional money, and there certainly are tax-free organized criminal groups that provide these things. On the other hand, many people either give up those things that are taxed too much, or they pay the tax because they would rather their behavior remain legal.
