by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Among a growing segment of the political left, wealth is now considered a sin — a socially undesirable behavior, like drinking or smoking, to be discouraged or eliminated through targeted taxes.
Throughout history, governments have used targeted taxes to discourage undesirable behavior. Alcohol and tobacco taxes are the most well-known sin taxes, but sugary drinks and fatty foods are the most recent target in an effort to reduce obesity. Most of us would agree that having a beer, a smoke, or a soda impacts only the person who consumes the product, but proponents say these taxes are justified in order to reduce the kind of excessive behavior that imposes costs on society, such as higher public spending on health care.
As a general rule, economists believe that taxes should be neutral to individual or business decision-making — meaning that taxes shouldn’t determine whether you purchase an electric car or an eight-cylinder gas guzzler. However, some economists argue that it is acceptable to use tax policy to change behavior when that behavior is causing externalities — that is, harm to others.
These levies are called Pigouvian taxes after the English economist Arthur Pigou, who spent his career studying how taxes could be used to prevent externalities. The much debated carbon tax is another notable example, one intended to reduce harmful carbon emissions by raising the cost of them.
In a similar way, presidential candidates Bernie Sanders and Elizabeth Warren hope to reduce the amount of wealth in America by raising the cost of it. Both have proposed targeted taxes to combat the perceived “problem” of excessive wealth and inequality.