The world's most regressive tax

One obvious objection to sin taxes and minimum pricing is that they are deeply regressive—they hit the poor much harder than they hit the rich. You might expect left-wing do-gooders to care about this but, with few exceptions, they are remarkably comfortable with it, which suggests that reforming the working classes is more important to them than making the poor wealthier.

When pushed on this issue, advocates often claim that because the poor have less money, they are more likely to change their consumption patterns in the face of price rises and, therefore, their health will benefit more than the rich from drinking/smoking/eating less. Far from being regressive, they say, sin taxes disproportionately benefit the poor. By their logic, in terms of health, such taxes are progressive.

It's a nice piece of rhetoric and there's only one small problem with it: It's bollocks. Real world experience from every corner of the globe throughout history has shown that the poor are less likely to adopt "healthy lifestyles" as a result of tax rises. Instead, they are made poorer.

Smoking is a classic example. In the 1940s, smoking rates were evenly spread across the classes. Today, after decades of increasing tobacco duty, those on low incomes are three times more likely to smoke than those in white collar jobs (as I explain in The Wages of Sin Taxes). This is the exact opposite of what should happen if the poor responded to price hikes more readily than the rich.

This week, a new study found that the sky-high cigarette prices in New York have acted as a massive tax raid on the poorest in society which has done nothing to reduce smoking rates amongst that group.

Poor smokers in New York State spend about a quarter of their entire income on cigarettes, nearly twice as much as the national average for low-income smokers, according to a new study.

The study, conducted by the non-profit research group RTI on behalf of the state's health department, found there was no statistically significant decline in the prevalence of smoking among poorer New Yorkers between 2003 and 2010, even as the habit declined by about 20 percent among all income groups.

The statistics are stark, but they should not be surprising. Smokers who earn less than $30,000 a year are spending 23.6 per cent of their income on tobacco. Those who earn more than $60,000 are spending just 2.2 per cent of their income on tobacco. Low income smokers are spending twice as big a share of their income on tabs than they did in 2003.

You would think that those who claim to be concerned about poverty and inequality would have something to say about this blatantly regressive and ineffective policy. Instead, their paternalism and blind faith in patently absurd 'public health' promises blinds their eyes.


UPDATE

Carl Phillips has more to say on this. Well worth reading.