Against sin taxes and soft prohibition

"An oppressive government is more to be feared than a tiger, or a beer."
~ Confucius

Matt Yglesias and Mark Kleiman both think that taxing beer at much higher rates is a good idea. They go so far as to assert that while only one dime of taxes is raised on a can of beer, one whole dollar of damage to society is incurred. The reasoning behind this seems quite shaky and more than a little absurd.

So let me count the ways I find this argument – which amounts to a sort of ‘soft prohibition’ or attempt at prohibition of behavior – to be silly and misguided.

First, beer is simply not that bad for you if you drink in moderation. Neither is wine. In fact, both have been found to have real health benefits. And yet moderate drinkers would be taxed just as much as alcoholics. This seems socially regressive as much as it is economically regressive. Not only that but as Daniel McCarthy notes:

Does anyone buy the assertion (unfootnoted in the original) that that a can of beer does, on some “average,” a dollar’s worth of damage to “people other than its drinker”? Every bar and restaurant would turn its neighborhood into downtown Beirut circa 1980 if that were true. Kleiman produces this risible estimate by averaging out all the harm done by louts, drunk drivers, and dipsomaniacs with failing livers, but raising the price of beer isn’t going to stop any of that — in fact, it will make matters much worse, for teenagers as well as adults. Kleiman’s article reflects some understanding of the monstrosity of the drug war, but one of the fundamental lessons of that war, and of earlier efforts at alcohol Prohibition, is that raising barriers to the procurement of weak intoxicants incentivizes the production of stronger ones. That was the case during Prohibition, when bootleggers brewed the strongest stuff they could (the better to get drunk on less, and the more profit per pint), and it’s been the case with the War on Drugs, leading to more potent marijuana, crack being developed out of cocaine, and crystal meth becoming an epidemic. Raising taxes on beer make hard liquor relatively more attractive; it does not much dampen underlying demand. (Least of all among teenagers, who contrary to Kleiman are willing to pay a good deal more than other people for their beer because that’s often the only way they can get it.)

Second, beer – unlike soft drinks – is a social drink. High taxes on beer in the UK have led to many pubs shutting down and more and more people staying home to drink. This may be good for drunk driving (I don’t know if that’s true or not) but it certainly isn’t good for fostering more community. We have to be wary of taxing ‘sin’ when so much of what we consider sin is actually a great way to bring people together as a community. Indeed, much of what busy-bodies consider sin is a great economic benefit to many communities. The sin of destroying jobs because some people might get drunk seems much greater than the sin of drink itself.

Third, the very logic behind sin taxes is flawed. We tax what we believe is unhealthy to society in an effort to punish bad or socially destructive behavior, but if our devious plan works and people stop buying and consuming these unhealthy things, then our revenue stream dries up. Then what? The problem with revenue streams drying up is that new revenue streams must be found, so new reasons to levy taxes must be conjured. Sin taxes, therefore, are simply unsustainable taxes and serve a prohibitionist purpose more than a reasonable alternative revenue source. It is social engineering plain and simple and will – as McCarthy notes above – lead to grave unintended consequences. Namely, people turn to untaxed, unregulated substances that are cheaper but often result in a much more destructive social cost.

A much more sensible approach would be to quit raising taxes on already-regulated substances and instead break up the black markets on at least one of the drugs we now criminalize: marijuana.

Making that one substance more available, regulated, and taxed would not only increase revenues but would be good for the economy, good for the drug wars, would massively lower spending on imprisonment, law enforcement, etc. People would no longer have to buy pot from a dealer who might also try to sell them LSD, cocaine, or heroin.

Obviously police departments and prisons will oppose this because they make tons of cash already by busting non-violent criminals and impounding their homes or getting tax dollars to house these menaces, but think of all the better ways we could be spending that money! Indeed, we could be giving some of that money back to the taxpayers!

So damn it all, keep your tax-collecting paws off my beer. I drink responsibly, just like most Americans. It’s good for my heart and my soul and my spirit. It’s good for my home town’s economy. Taxing so-called sin may sound good on paper, but like any other form of prohibition it is riddled with unintended consequences, and that’s not something to brush off lightly.