Why does the government place excise taxes on goods such as cigarettes and alcohol? Is it because these products are “sinful”? (These taxes are often called “sin taxes.”)  Do you believe that excise taxes reduce consumption of these goods by very much?  What does your response to the previous question imply regarding the amount of government excise tax revenue? 

Expert Answers

An illustration of the letter 'A' in a speech bubbles

An additional reason that sin taxes are imposed is that aside from the manufacturers of these taxed products, who must try to lobby against them to some degree, it is very difficult to find a critical mass of taxpayers who are going to oppose a sin tax in a public...

Unlock
This Answer Now

Start your 48-hour free trial to unlock this answer and thousands more. Enjoy eNotes ad-free and cancel anytime.

Start your 48-Hour Free Trial

An additional reason that sin taxes are imposed is that aside from the manufacturers of these taxed products, who must try to lobby against them to some degree, it is very difficult to find a critical mass of taxpayers who are going to oppose a sin tax in a public outcry or at the ballot box.  Who is going to come out and say that drinkers and smokers should be protected from paying additional taxes?  I think people realize that both cost taxpayers a great deal of money in one way or another, for example, in lost productivity, in accidents, and in poor health, and smokers and drinkers are in the minority.  There simply are not enough people to make a big enough fuss to prevent this from happening. 

Approved by eNotes Editorial Team
An illustration of the letter 'A' in a speech bubbles

In answering this question, we must first note that different people within a government can have different reasons for imposing or supporting a tax.  There are some people who do want to impose “sin taxes” because they feel that the activities that are taxes are sinful.  However, there are also people who simply want to impose those taxes because they think that those taxes are good ways to raise revenue for the government.    Excise taxes on those goods tend also to be less visible than things like income taxes because they are paid in relatively small amounts each time someone buys the goods, not in a lump sum one time a year.  This means excise taxes generally excite less opposition than income taxes do.

I do not believe that the imposition of excise taxes generally leads to a very great decline in the consumption of cigarettes or alcohol.  In economic terms, I do not think that the demand for these goods is very price elastic.  The reason for this is that people who want to smoke or drink often do not feel that there are any real substitutes for smoking or drinking.  Therefore, they end up consuming nearly as much of the product even when the price goes up because of the excise tax.  If I am correct about this, the amount of revenue that the government will reap from such taxes should be relatively high.  People will keep buying these goods and will therefore pay a lot of tax on them.  This is probably another reason why governments like to impose sin taxes; they figure that the people will not change their consumption habits and the sin taxes will bring in good amounts of revenue.

Approved by eNotes Editorial Team