A sin tax is an excise tax on specific goods and services due to their ability, or perception, to be harmful or costly to society. Some items that often have a sin tax include tobacco products, alcohol, and gambling. Sin taxes seek to deter people from engaging in socially harmful activities and behaviors and also provide a source of revenue for governments.
Sin Taxes and Their Purpose
If the government decides that certain products or services are — or could be — harmful to society in general, they can implement a sin tax. The most common sin tax applies to the sale of liquor, tobacco, and gambling. In the United States, sin taxes are levied at the time a product gets produced or when certain services are performed.
Impact and Revenue Generation
The main goal of a sin tax is to lower the total demand by increasing the total price of goods and services. A perfect example of a sin tax is the tax levied against gasoline, with the revenue generated helping to finance additional construction for highways and roads.