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Monday, September 26, 2011

Alcohol, tobacco taxes: Avoid ‘killjoy’ approach

For decades, finance ministers around the world did complex calculations when setting their "sin taxes" on alcohol and tobacco products.

They tried to figure out the highest possible taxes that they could impose on these products without pushing consumption down too much, to a level where the gross collection of taxes on these products would actually fall despite the higher tax rate.

Generally, the public was far more ready to see taxes rise on these products, so the finance ministers were able to largely ignore the adverse comments and simply set their taxes at the rates they thought would create the largest gross return.

This sort of freedom was rarely granted other taxes where the level of complaints over higher tax rates was usually far too great to admit more than minor adjustments. But so far as "sin taxes" were concerned the only limit was the desire to extract as many golden eggs as possible without killing the golden goose.

Then health ministers started contributing to the debate. They had noticed the modest temporary falls in consumption when taxes on alcohol and tobacco were raised, and although when these tax raises were pure revenue driven the consumption did rebound. > > > > Read More