The Maryland Public Policy Institute
JULY 26, 2010
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While reading through a Baltimore Sun editorial, I was struck by this phrase: “that taxes on spirits haven’t been raised in 55 years is shameful.” Of all the things going on in Annapolis, the fact that legislators haven’t voted for an alcohol tax increase in 55 years is the action for which the Sun thinks they should be ashamed?
The Sun’s reasoning was that low alcohol taxes lead to higher alcohol consumption and a host of societal ills. That sounds familiar. I seem to recall some people from our nation’s history that said similar things. I think they even got a constitutional amendment passed that allowed the federal government to ban the sale of alcohol. That little experiment in social engineering called Prohibition certainly ended up well, didn’t it?
Taxes should be used to raise revenue, not change individuals’ behavior. Government trying to re-order society is bad enough, but using the tax code to do it is even worse. I wholeheartedly agree with the Tax Foundation’s principle that good tax policy should be neutral:
The fewer economic decisions that are made for tax reasons, the better. The primary purpose of taxes is to raise needed revenue, not to micromanage the economy. The tax system should not favor certain industries, activities, or products.
If Maryland needs tax revenue, it should not single out consumers of alcohol to pay for government programs used by everyone. While I would prefer Maryland’s budget needs be accomplished through spending cuts, if it is necessary to raise taxes then politicians should raise the taxes of all Maryland taxpayers. They should have the guts to impose hardship on everyone to fund their big-spending ways, not just a select group of people who do things that “progressives” look down upon.
I would add that I see another legitimate purpose to taxation: mitigating externalities.
There are many things that people can do that affect others (positively or negatively). Often people do this without realizing the affect they are having. Some prime examples are driving through the city at rush hour because it's "cheap" or creating pollution because "clean" production costs more. In reality, the driver pays for things by sitting in traffic, and the polluter hurts himself as well as his neighbor.
It may be difficult to strike the right balance, but sometimes a tax can be the right way to encourage people to act differently by making them pay the full price for their actions (rather than paying some of it and looking to the rest of society to pick up the remainder).
I will admit, though, that this logic can be easily distorted and used to justify some rather agenda-driven legislation.
You are right, John. Perhaps I should have expanded on the issue, but it is legitimate for the government to impose higher taxes on an activity that requires more government spending to mitigate its externalities.
Of course, in many instances this can be accomplished through fees. The driving example you cite is one that could only be handled on toll roads. A toll isn't a tax; it's a fee to use the road. It's perfectly acceptable to raise the toll during peak usage times.
Although advocates of higher sin taxes usually justify these taxes because they supposedly impose costs on society, there is little evidence that smoking or drinking really cost government all that much. They do cost a little and thus it's proper to impose some form of excise taxes on alcohol and tobacco, but when you start levying high rates on these products it's not a matter of paying for externalities, it's all about punishing an unpopular group of people.
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