I admire Australian Prime Minister Julia Gillard for promising that 50% of the revenue from her proposed carbon tax will be returned to the Australian people as a tax cut. I’d admire her more if it were 100%, but nonetheless she deserves high marks for recognizing that there is no essential logical connection between reducing an undesirable behavior through taxation and increasing the size of government.
The norm in my field is to propose hypothecated tax policies along the lines of “Double the excise tax on beer and use the money for alcohol use disorder treatment” or “Increase tobacco taxes by a dollar a pack and spend the money on smoking prevention programs targeted at youth”. Although in some cases those may be wise policy proposals, they gloss over two significant problems.
First, money allegedly earmarked for specific health, social welfare and green environment promoting programs is often spent by governments on other things. Only a small part of the massive tobacco settlement is being spent as promised. Seven years after enacting a special income tax to specifically fund mental health services, California leads the nation in mental health service cuts. “Raise the tax on cigarettes by a dollar a pack so that we can spend 8 cents on tobacco prevention, 10 cents on prisons, and the rest on highway repair and debt service” isn’t a sexy political slogan, but it’s closer to the truth than many health advocates would like to admit.
Second, just because there is a consensus among voters to suppress some behavior doesn’t mean there is a consensus to grow the state. Particularly in the U.S., appreciating this difference may be a prerequisite for establishing a
“sin tax” and sustaining it over time. A proposal to raise the tax on cigarettes and beer and give every American an increased federal tax deduction with the proceeds would be far more likely to succeed than would a proposal that let the state pocket the tax revenue.
I suspect this issue gets little attention because “sin tax” policies are often formulated by advocates who genuinely care about the problem behavior but also are tempted to seek rent at the same time. In addition, people who want to use taxes to suppress particular health and environment damage behaviors usually (though not always) hail from the political left, in which the idea that a larger state is good may seem to go without saying. If they took a page from the Australian PM, U.S. sin tax proponents would broaden their political support and create a public image of selflessness that matches the noblest of their impulses.