Sin Taxes Offer Advantages but Are Not a Panacea

Analysis of Kentucky’s Cigarette Tax Hike: Impact on Revenue and Smoking Rates

Recent data out of Kentucky suggests the state’s cigarette tax rate hike in 2018 has boosted tax revenue and depressed smoking rates. The decline in smoking illustrates the potential impact of sin taxes to reduce harmful behavior. But attributing the drop-off solely to the tax increase is difficult because of confounding variables such as public health campaigns, social trends, and the rise of vaping.

Notwithstanding that caveat, higher taxes can deter consumption among a subset of the population. The news isn’t all good, though—research has found such tax burdens disproportionately fall on older, less educated, and lower-income individuals. There can be a “compounding of burdens” effect for individuals who are least able to reduce their consumption of a “sin.” They may find themselves under the strain of both addiction and higher taxes than others.

States should resist the temptation to tax a “sin” out of existence. Instead, they should consider public education and increased funding for support campaigns—such as one-on-one counseling and the provision of smoking-cessation medicines—for people who remain affected. In Kentucky, for example, this may even necessitate reducing its current cigarette tax rate.

Sin taxes must never be viewed as punitive. Policymakers should balance raising taxes to deter behavior with reducing taxes to improve quality of life. At a certain point, remaining smokers need help to quit, not steadily growing financial hardship. Kentucky may be reaching that point soon.