Sin Taxes and What we are Teaching People

As state governments around the country start to feel the pinch of hard times coupled with their gross reckless spending, new forms of taxes are springing up all over the country. The federal government in the name of increasing healthcare for needy children (the merits of the SCHIP bill are an entirely different matter) just raised taxes on cigarettes… again. In Oregon they are proposing a 1900% increase on beer taxes. NY was considering a “fat tax” on soda and now there is talk of a “porn tax”. These are also known as “sin taxes” and they have a dual intent. The first intent is to raise money, obviously, but the second intent, and by far more ‘noble’ purpose of these politicians is to discourage the activity. It follows common sense and everyone seems to get it. If you tax something you discourage it. The more you tax it, the more you discourage it.

Duh.

Any parent or teacher can tell you that good behavior should be rewarded, or reinforced and bad behavior discouraged. Your child brings home a good report card; he gets to choose where the family will go out to dinner. Your child forgets to turn in his assignments and you follow him to class and wait with him and his friends in utter embarrassment until he pulls the assignment out of his bag and hands it to the teacher (I’m getting very close on this one). Reward the good, discourage the bad.

Adults aren’t much different than children.

Let’s look at our new stimulus bill and this endless succession of bailouts all funded from the tax payers.

The states that have been spending money in a fiscally responsible manner get… squat.
The homeowners who can and do, still pay their mortgage every month get… squat.
The bank and business owners who have been responsible and prudent with their businesses get… squat.

Automakers who push subpar quality cars and cow tow to the UAW get… BILLIONS in bailouts.
Bankers who bought up junk mortgage backed securities get… a TRILLION dollar bailout.

These are the most heinous examples, but the new stimulus bill also effectively rolls back the welfare reform of the 90s. The ones that the Republicans tried to force on Pres. Clinton repeatedly and finally convinced him to sign (when he was facing re-election). The same welfare reform that Clinton began claiming as his own because it was so successful in reducing welfare rolls and getting people back to work that he couldn’t pass up the opportunity for good PR.

Now let’s think back to the “sin taxes”. If you want to encourage something you provide incentives for it. If you want to discourage something you tax it.

So we just provided $800 billion in incentives to people who have been exhibiting irresponsible behavior (not including the families who came into bad times through no fault of their own), in addition to the TARP bailout of $700 billion, in addition to the $1 TRILLION bank bailout, in addition to the bailout (and soon increased bailout) of Fannie and Freddie, and countless other financial institution bailouts.

What are we encouraging?

What are we discouraging?