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Increasing Sin Tax for Increasing Costs of Medical Care Research Paper

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Updated: Apr 27th, 2020

Introduction

Should The United States Federal Government increase “sin taxes” on alcohol and tobacco to help pay for the increasing costs of medical care? With the economy in a slump, the federal government is losing money on sales, property tax, and income taxes as sources of revenue. Lawmakers are trying to find new, less painful sources of revenue. In addition, the cost is going up on public services, entitlement programs and other various functions of government.

This upward swing requires that they look for a better, cheaper, and more effective way of spending. It is no wonder that policy makers are starting to feel the pinch. To make things even more precarious, they are facing a federal debt that seems to swell on a daily basis. Overall, this situation demands a completely new degree of creativity from all levels of government. The United States Federal Government makes some valid points on why tax increases, particularly sin tax, can reduce medical care expenses.

Taxes

What is “sin tax” in general? Creighton said that “Sin taxes are another name for excise taxes or sumptuary taxes that are placed on items that either society or the sovereign find objectionable.” (Creighton 126) Often these taxes would show up during a recession, so as to “generate revenue for the government and curb the consumption of unhealthy or undesirable products.” (Creighton 126)

There are two different types of sin tax where revenue can be generated. The first sin tax is government sponsored lotteries and legalized gambling. In search of sources of revenue, lotteries and gambling are not new concepts. The second is excise taxes and it is often used on products considered socially unhealthy, such as, alcohol, tobacco, and junk food

The first Continental Congress made use of lotteries to help finance the Revolutionary War. A decade ago, the general public rejected the custom of gambling. In the last decade, the viewpoints have changed dramatically.

Public perception has turned almost one hundred and eighty degrees on gambling. An outlook in finding and keeping a stable job, growing uncertainty in maintaining financial security, and aggressive marketing and public opinion campaigns launched by casinos, state governments, and Indian reservations has almost certainly had a hand in corroding anti-gambling sentiments.

During the Revolutionary War, congress passed a bill on alcohol tax to help generate revenue so as to cope with the national debt (Creighton 125). Creighton said “Secretary Hamilton, however, divulged a truly paternalistic aspect of tax when he described it “as a measure of social discipline than as a source of revenue” (Creighton 125). Another instance came up in1862 when the government passed a permanent tax increase on alcohol to generate revenue, which helped to pay the Civil War.

During the Revolutionary War and Civil War the government had difficulty collecting sin tax from the public. Many years later, the government has been continued to use this approach to minimize tobacco and alcohol use. It has been relatively successful in discouraging consumers from buying tobacco in recent times. Recently, the government has started taxing high calorie foods in an effort to stamp out obesity and raise additional revenue.

The United States Federal Government wants to increase “sin taxes” to help pay for the increasing costs of medical care. This has a lot of economic implications. Historically it has been shown that those sin taxes are rarely used by federal and state governments to support the purported programs. The programs are too amorphous. In this case, it has been identified that sin tax would be used to curb medical care costs but currently, those expenses come from too many quarters; it would be difficult to wave them off with a sin tax magic wand.

Unless all those flaws are fully identified and neutralized then the tax additions would not be very useful. Another problem is the contradictive nature of these taxes. To adequately solve the medical care problem through sin tax, the US government would need to make sin tax products prohibitively high (Creighton 134). Buyers would dramatically reduce their consumption of those ‘sin’ products and there would be no more taxes to be collected.

It would no longer be feasible to rely on that avenue for revenue because consumption would be minimal. This casts serious doubts on whether the method is economically feasible. Nonetheless, supporters of this move argue that addictive products by their very nature cause consumers to keep buying them regardless of their prices.

In other words, it is assumed that the commodities are price inelastic. This has been proven through the high amounts of revenue collected by states such as New York from alcohol-based taxes. No clear side is convincing enough, so one must look at other factors to determine whether the strategy will work.

Products of Sin Taxes

The major products considered as sin tax include high calorie foods such as confectionaries; snacks such as candy and chocolate and drinks that are high in sugar content such as soda. Alcohol and tobacco have also been traditionally considered as ‘sin’ products for quite a long time. Usually, the government is selective about the nature of foods that fall under this category, and has chosen soda for this. Selection of alcohol and tobacco products for increased taxation has been somewhat homogeneous; hence less contradictory.

Other products are less common, but still important sources of sin tax revenue for federal governments. They include charges on strip club patrons usually called Pole tax and heightened sales taxes on sexually explicit products such as movies and magazines.

These products are considered sin tax because they encourage habits that are either morally or medically objectionable. Society is governed by certain moral codes which dictate these habits.

Using sin tax to fund medical care costs has raised a lot of eyebrows in the political scene because Legislators are afraid of the objections raised by players in the beverage industry such as: Coca cola, Kraft foods and Pepsi Co. The manufacturers also have their own lobbyists who argue that sin taxes would affect low income earners.

Consumer watchdogs have warned that the move could create a backlash from buyers who may oppose the idea of paying more for their favorite drinks. Others warn that taxes can never really cure a bad habit as they do not get to the root cause of the problem (Chaufan et. al 90). In the wake of so much opposition, it is likely that employing sin tax to cope with healthcare expenditures may backfire.

Medical Care

Medical care in the US makes up one of the most complex health systems in the world. No single party is responsible for the costs as the government, employers, the uninsured and insurance firms all have a stake in it. Estimates indicate that in 2006, the US spent sixteen percent of its budget on healthcare. This amounted to 2.1 trillion dollars. In 2007, those costs increased to 2.2 trillion dollars. In 2009, the figures plummeted to 2.5 trillion dollars (Jones 4).

The amounts refer to expenditures incurred by federal and local governments alongside personal and corporate expenditures; The Office of the Actuary of Centers for Medicare and Medicaid services releases these annual figures. The US government is accountable for 30% of these costs while the rest of the population either resorts to private funding through employers or is uninsured. In total, the US government spends approximately 793 billion dollars on publically provided health care.

Senators and the Obama government have suggested that collecting taxes on soda would provide the government with a total of 24 billion dollars worth of revenue. The amount may seem like a lot of money but it is less than ten percent of total health care costs; it is merely 3% of all healthcare expenditures.

The public has objected to the use concept of sin tax since it believes that the government is acting paternalistically. Citizens argue that adults have the right to choose what they consume and should not be forced to change that because of the values of their government. Deontological ethics opposes sin taxes.

Freedom of choice and fair treatment are undermined according to this school of thought. Consequentialists would focus on the general welfare of society to support sin tax but there are still an equal number of consequentialist arguments that show how utility will be reduced (as explained earlier). Ethically speaking, sin taxes would be quite problematic to the public (Dorsey 58).

Recommendations for action

Given the economic, ethical, political and social ramifications of sin taxes, it is unlikely that this strategy will do well. The budgetary problem lies in the country’s taxation system. Unlike other developed countries, the US does not collect value added tax. It largely relies on excise tax for consumables. Most of the government’s budget is funded through income tax rather than consumption tax. Sin tax is classified as a type of consumption tax. However, the moral, political and social issues surrounding this kind of tax make it unreliable.

The current budget deficit calls for creative solutions, but sin tax would not be one of them. It would be more effective to think along the lines of value added tax. Americans are suffering from these dire economic constraints because their government is focusing their attention on ineffective tax strategies. Overreliance on income tax by the government has caused a negative effect on the economy.

This discourages investment in the state and therefore reduces the GDP (Hines 52). Ultimately, the government ends up having less to collect, and even less to spend on expenditures such as health care. The government needs to consider consumption taxes seriously before the medical care situation spirals out of control.

Conclusion

The government should not use taxes raised from sin tax to reduce medical care costs owing to a number of reasons. Implementing this policy would not raise sufficient revenue because sin products would need to be prohibitively high; this would prevent a number of people from purchasing them and there would be no taxes to deduct. Even the concept of price elasticity is debatable since smoking has reduced after introduction of cigarette sin tax.

The idea has certain moral implications as well. Citizens oppose paternalistic tendencies from the government, so they would not welcome such a move. It could also create a backlash from targeted corporate bodies that play a large role in the economy of the country. In order to deal with spiraling health care costs, the country should focus on improving consumption tax. Failure to adopt value added tax has led to this challenge and should be addressed.

Works Cited

Chaufan, Claudia;Gee Hee Hong;Fox, Patrick. “‘Sin-Food’ Taxes and Sugar-Sweetened Beverages–The Right Policy for the Wrong Reasons?” American Journal of Health Promotion 25.2 (2010), 87-90. Academic Search Complete. EBSCO. Web.

Creighton, Robert. “Fat Taxes.” Journal of Legal Medicine 31.1 (2010), 123-136. Academic Search Complete. EBSCO. Web.

Dorsey, Roger. “In defense of ‘sin taxes’: tax policy, virtue ethics, and behavioral economics.” Southern Law Journal 20.1 (2010), 53-67. Academic Search Complete. EBSCO. Web.

Hines, James. Taxing consumptions and other sins. Journal of economic perspectives 21.1(2007): 49-68

Jones, Brent. “Medical expenses have very steep rate of growth”, USA Today. 2011. Web.

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