How Sin Taxes Work

buying cigarettes
"Sin tax" is another name for an excise tax, and it's intended to help you behave.

In 2012, New York City Mayor Michael Bloomberg was big on promoting public health. He successfully pushed to ban smoking in public spaces, and then he went after artificial trans fats, which are known to be carcinogenic. Soon you couldn't get a drop of artificial trans fats in an NYC restaurant. And if that frustrated you, you couldn't calm yourself with a smoke, either.

All was not lost, however. You could still fill up on a mega-dose of sweet, bubbly soda anywhere in the city. But Mayor Bloomberg's anti-obesity campaign began zeroing in on super-sized helpings of delicious pop. In May 2012, he announced a plan to ban the sale of soft drinks that were served in portions over 16 fluid ounces (473 milliliters) [source: Grynbaum].

The reason? Medical researchers had been saying for some time that the steady rise in American obesity was linked in part to the steady intake of liquid sugar (e.g., soda). Bloomberg's idea was to reduce the amount of soft drinks consumed and thereby reduce obesity, widely considered a major health issue.

Sin taxes are often considered a favorite tool of liberals out to impose a nanny state on free-thinking individuals. Conservatives often oppose sin taxes on the grounds that they amount to greater government intervention in people's lives.

Accordingly, conservative critics weighed in, opining that the ban was an infringement on New Yorkers' personal right to drink as much gosh darn soda as they wanted. But it wasn't only conservatives who took umbrage. The comedian Jon Stewart, then host of "The Daily Show," was outraged by the proposed ban, saying that forbidding soft drinks was draconian and it wouldn't have the desired effect [source: Friar]. If even Jon Stewart, usually associated with liberal politics, was against Bloomberg's plan, did it have a future?

Turns out, it didn't. The soft drink industry threw millions of dollars into an ad campaign designed to counter the ban, and they simultaneously mounted a legal challenge. In June 2014, New York's final court of appeals struck down the ban in a definitive ruling [source: Grynbaum].

And that was the end of that. Or was it? Bloomberg mulled it over and decided he'd gone about it the wrong way. When you ban stuff that people like, it peeves them. But what if you just made that stuff a little more expensive by, say, adding a little wafer-thin tax to it? Would that have an effect?

In late 2014, Bloomberg, who also happens to be a billionaire, helped fund a campaign in Berkeley, California, to add an excise tax on soft drinks. Despite a $1.7 million counter-campaign by the soda industry, voters approved the measure, and Berkeley became the first jurisdiction in the U.S. to try out a soda tax. The tax adds a penny per ounce (30 milliliters) to sweetened drinks, including soda and iced tea.

According to the American Journal of Public Health, the tax worked, at least in the short-term. Measuring soda intake over a five-month period after the tax was implemented, researchers found that low-income and minority Berkeley residents drank 21 percent less than they had before. By contrast, over the same period in nearby cities that hadn't added the tax, like San Francisco, consumption went up by 4 percent.

The tax Berkeley added to soft drinks is a type of excise tax often referred to as a "sin tax." It's not a new idea. In fact, it's a pretty old one.