Policy Documents

Taxing Sin

Richard Williams and Katelyn Christ –
July 1, 2009

Sin taxes in modern economic terms amount to excise, or per unit, taxes that are chiefly designed to reduce specific behaviors thought to be harmful to society. Sin taxes have played roles of varying importance throughout U.S. tax history. The ever-expanding list of taxable "sins" proposed by governments includes cigarettes, alcoholic beverages, gasoline, bullets, and, more recently, sugary soft drinks and fatty snacks.

In 1790, Alexander Hamilton proposed the first excise tax on whiskey to refund Revolutionary War debts, following Adam Smith's direction in the Wealth of Nations. Made immortal by the rebellion it spawned, Hamilton's whiskey tax was subsequently rescinded, but selective excise taxes have hardly disappeared. History reveals that federal excise taxes have been predominantly enacted as wartime emergency measures, and the majority of the taxes were customarily repealed when hostilities ended. Recently, however, the arguments for imposing new excise taxes and increasing existing ones have reemerged across party lines and have spawned several myths about the efficacy of sin taxation.