The Wages of Sin: Taxing America's Legal Vices

Abstract

Although state taxation policies have received some attention in political science (e.g., Hansen 1983), the taxation of alcohol, tobacco, gambling, and similar products has been virtually ignored.' This absence of analysis is surprising because sin taxes, as they are commonly called, produced $14.1 billion or about 5.6 percent of all state government revenues in 1987.2 In addition to being an important policy phenomenon, sin taxes have become an important political phenomenon. Considered a relatively easy tax to levy, sin taxes allow legislatures to raise revenue without also arousing the ire of voters. Advocacy groups that would like to limit drinking, smoking, or gambling also support raising taxes on these vices. Sin tax policies provide an opportunity to examine a public policy that is highly salient yet lacking in complexities that would limit public participation. They also permit us to integrate several areas of policy studies that are usually studied separately. Program design questions such as the impact of various sin taxes on state revenues can be addressed. The politics of policy-making can be examined by an analysis of the forces that influence sin tax policies. Finally, policy impacts can be assessed by considering the effect of sin tax policies on consumption. This study examines state policies on taxation and sale of alcoholic beverages, taxation of cigarettes, legalization and taxation of gambling, and the adoption of state lotteries. Several empirical questions are addressed: (1) how do sin tax policies affect state revenues; (2) what are the political forces that explain policy actions (tax rates, legalization of gaming, etc.); (3) what political forces explain policy outputs (revenues raised, revenue