Taxing Sin?
The other day I was talking about tax reform – a favourite subject of mine – with a couple of bright American friends. As he poured himself another large glass of red wine, one friend said, “It’s obvious – we should start by taxing sin”.
The other agreed, and both were much more content with the soundbite than willing to engage with my arguments in favour of Cashflow Taxation, so – as the red wine was dulling our collective intelligence – I let the matter drop, and the ranting moved on to something else.
Taxing sin, though, is a really rotten basis for a tax policy. It might have its merits as a means of controlling sin, but it’s rubbish for raising revenue – and the worst thing about it is that it’s regressive, leastways if you count the most obvious sins of tobacco and alcohol. There was a doctor the other week suggesting that chocolate should be taxed, because it’s making us all diabetic. Which is nonsense in so many ways. If you were to ask me what I think is responsible for the epidemic of type 2 diabetes, I’d say pop: particularly the practice of feeding children sugary drinks when they are thirsty. Never mind the chocolate, it’s the calories in ‘beena and pop hitting a metabolism that hasn’t yet registered hunger that cause the damage. And it’s not the chocolate but the sugar it contains that’s the trouble. So we should, perhaps, add sugar to the list of sinful items ripe for punitive and deterrent taxation. Jolly good, another way to tax the poor without feeling guilty about it. An even better wheeze than the National Lottery!
These days, of course, the worst sin of all is being environunfriendly; and before the credit-crunch hit home, all the main parties were talking about “green taxes” as a virtuous, and painful only in the right places, way of raising money. The same criticisms apply. Green taxes are a good thing if they mean we change our behaviour, but they hit the poorest hardest because poor people tend to spend a larger proportion of their income on fuel. So to stop them being regressive, green taxes have to be accompanied by a complicated programme of countervailing subsidies – such as free home insulation – which will absorb much of the revenue raised. Consequently, as everyone insulates their home and behaves more greenly virtuously in other ways, the tax take falls.
Since we choose to live in a society which spends thirty or forty percent of its income on universal state-provided goods and services such as education, health and defence, we need to find a lot more money than sin taxes can possibly raise. By all means, tax sin as part of a sin reduction strategy; but if it works, it’ll be the lack of funds that lead to closing hospitals, not the lack of patients. Mainstream funding still needs to come from mainstream economic activity.
The Transparency Extremist 
If there was a tax for sin, I’d be even poorer than I am. Although there is the argument that sin can make you richer. Of course we are into a very sticky area about what sin actually is, and who it has been defined by. My definition of sin I’m sure would differ from the generally accepted list, the seven deadly ones aside. For example, the pope would definitely pay lots of tax, and we could use it to re-educate African RCs about the use of condoms and reason why HIV spreads. But that’s another story. My point is that there is already a heavy tax on cigarettes, and a proposed minimum level for alcohol, so why not tax sugar? It must surely be the cause of a massive amount of medical expenditure, especially if you include NHS dentistry. It’s not such a stupid idea.
I also think one of the fundamental problems with modern economics is its foundation on profit. It doesn’t take an idiot to work out that you can’t keep adding value to something indefinitely — you end up, well — where we are now. Cap profits, and companies would have to reinvest. If only greed didn’t keep getting in the way of things. Is greed a sin?
You can add value if you add value – that is, something that people actually find useful enough to want to pay for – you can’t do it by accounting tricks; and far too much of the financial services industry was about adding value by accounting tricks. Transparency lets anyone spot where there are accounting tricks.
It’s not a stupid idea to tax cigarettes, alcohol, sugar, carbon or anything else that’s bad for us or for the environment – but only as part of of the sin control strategy. If a high tax on booze and fags stops people drinking and smoking, that’s good, but it means there’s less tax collected to pay for schools and hospitals. If you plan on paying for everything from them, though, (a) you won’t be able to raise enough money anyway; and (b) poor people end up paying more for the schools and hospitals than rich people, because poor people spend proportionately more of their income on fags, booze, sugar and fuel than rich people do. As it is, the tax on fags is already as high as the market will reasonably bear: if you want fags, but don’t want to pay tax on them, you don’t have to look very far for someone who’ll sell you a carton of 200 for twenty-five quid.