To raise revenue for tight government budgets, legislators sometimes attempt to raise revenue by imposing unusually high excise taxes on cigarettes, liquor, gambling, and so on. This type of charge, often called a "sin tax," appeals to voters who view it as a way of discouraging consumption of certain objectionable products.
Critics of sin taxes cite the following as reasons against imposing a sin tax:
It reduces the income of the buyer.
- It lowers profits for the seller, and leads to reduced investment, wages, and jobs.
- It is not likely to seriously discourage consumption habits when those habits are intensely desired.
- It may eventually decrease government revenue, especially as people move their business to the informal sector.
- It encourages people to turn to harder substances to feed their habits at the same price.
- It creates underground markets, which tend toward corruption and violence, and fosters disrespect for the law.
- It sets up a moral hazard for policy makers, who vacillate between wanting to discourage undesirable behavior and wanting to encourage it for revenue purposes.
The goods that sin taxes are imposed on vary by state, so local laws should be consulted. Typically, when sin taxes are imposed, they are imposed on items that are discouraged for health, moral, and other reasons, for example, cigarettes, gambling, soda pop, beer, wine, hard liquor, topless bars, snacks, and other items.
