Corzine Sin Tax Backfires

19 August 2007 @ 19:21 | Posted in » New Jersey, Politics

Back in 2005 I wrote:

Sin taxes are interesting phenomena. You tax under the guise of the public good, but when push comes to shove, government learns to rely upon those tax revenues.

A few months later, I highlighted that Corzine’s increase in sin taxes will produce less revenue:

Look no further than sin taxes. Corzine has proposed big increases in cigarette taxes (whispers are it is not as large as he wanted). Yet, revenue collected from cigarettes will decrease (thanks, Enlighten). That is the nature of sin taxes. Governments keep raising taxes on these products ~~to balance budgets~~ for the public good and eventually the public stops using the product. Then the cash cow is gone.

Now we have the data:

New Jersey has secured another dubious distinction. It is the first state in the nation to experience a decline in cigarette tax revenues after increasing the cigarette tax. This fact illustrates it is possible to overtax an economic activity. When their costs are increased, rational producers and consumers will protect their economic interests. Workers will move to jurisdictions that tax their labor and wealth less and consumers will purchase goods in venues where prices are cheaper.

Governor Corzine’s policies are hurting New Jersey, plain and simple. Sin taxes make no sense. The more one taxes a product such as cigarettes, the fewer people who will purchase that product. Perhaps one will argue that is the ultimate purpose of such a tax. My counter then is why not tax a pack of cigarettes $100? That would certainly reduce demand. Unfortunately, sin taxes are not to reduce consumption but to balance budgets on those who participate in an activity the majority does not. It’s an easy tax to pass as most hardly care what the tax on cigarettes or alcohol is as it does not affect him.

We see now, however, how sin taxes really work. With decreased “revenue” being collected from the tax, money has to be found to supplement the “lost income” (This past year that was $23 million). Where does government get its money from? This is why state spending never decreases.

Governor Corzine may have a successful business background, but his policies are stifling business in the Garden State.