Wednesday 25 July 2018

Sin taxes: stating the obvious

There was a peculiar issue of the Lancet published earlier this year which claimed that 'sin taxes' are not regressive. I wrote about it for the Spectator at the time, but it required a more thorough rebuttal so I wrote something for the IEA's Current Controversies series. It was published today and you can download it for free here.

The title gives you the gist. No matter how you look at it, taxes on food, soft drinks, tobacco and alcohol are financially regressive. Some are more regressive than others but they all take a greater share of income from the poor than from the rich.

The paper also looks at various counter-claims which amount to whataboutery, such as this dumb statement:

If you think a tax on sugary drinks is regressive for low-income and minority communities, try getting Type 2 diabetes...

The idea here is that diabetes, like many health problems, has a socio-economic gradient and is therefore 'regressive' in health terms. In this view, soda taxes are progressive - or, at least, they mitigate some of the regressive financial impact - because they disproportionately benefit people on low incomes.

The problem with this 'two wrongs make a right' argument is that soda taxes have never been found to reduce obesity, let alone diabetes, anywhere in the world. People on low incomes are not more likely to reduce their consumption of sugary drinks as a result of such a tax and experience has shown that taxes on tobacco and alcohol have not narrowed 'health inequalities'.

But even if none of this were true - even if taxes yielded health benefits that favoured people on low incomes - it would not change the fact that they take a greater share of income from the poor than from the rich. They are therefore regressive because it's an economic concept and that's the definition.

It's not rocket science, is it?

Download Of Course Sin Taxes Are Regressive here.

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