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Procedure
- Begin the discussion by
asking students to name goods and services provided by governments.
(schools, roads, national defense, health care, and so on)
Explain that these goods and services are paid for by taxes. Choose
a few examples and ask students to discuss the type or method of taxation
that is used to pay for the good or service. (Example: Property
tax is the predominant method of taxation used to fund schools. Gasoline
taxes are used to pay for highway improvements. National defense is
supported through income taxes.)
- Point out that drivers
pay for their use of highways through the gasoline tax. The tax for
some public goods and services are borne by the people who use the
good or service.
- Explain that the benefits-received
principle of taxation contends those who benefit should be those
who pay. As concern has grown over the increasing burden to states
of health care, many proposals have been made to increase the tax
on cigarettes and alcohol to fund health care programs. Taxes on goods
or services that are considered by many to be harmful are termed "sin
taxes."
- Refer students to "Faulty
Sin Tax" from the January 9, 1998 issue of the Philadelphia
Business Journal. Prompt a discussion of the article by asking
the following questions.
- What justifications
for "sin taxes" are given by proponents of this type
of tax? (Proponents of sin taxes seek to impose this type of
tax to shape behavior or to raise revenue.)
- Are these compatible
goals or are these opposing goals? Why? (Students should make
the following points: Taxes on cigarettes and alcohol raise the
prices of those goods. If the tax is imposed so that the high
price of the good will deter people from using the good, and if
many people actually reduce their use of the good, the state's
revenue may not increase to the extent needed to fund the desired
health care programs. If the higher price deters few people from
reducing their consumption of the good, the state's revenue will
increase. This tax policy can't reduce use and increase revenue.
These are opposing goals.)
- How might people avoid
paying the higher tax without quitting their habits? (They
may buy these goods in neighboring states.)
- There is an economic
tenet that states, "People respond to incentives in predictable
ways." It would seem that imposing a tax that raises the
price of cigarettes by $.80 would provide a powerful incentive
to quit. Is it likely that all, or even most, smokers will quit?
(It is unlikely because smoking is an addiction.)
- Explain that studies show
that cigarette smoking is more prevalent among people with lower levels
of education. In 1993, 13.5 percent of people with 16 or more years
of education smoked while 36.8 percent of people with only 9-11 years
of education. Smoking is also more prevalent among lower income groups.
Display Visual 1, Tax Burden by Income
Level, and ask students to state the percentage of smokers at each
income level.
- Display Visual
2 , Methods of Taxation, and explain that a regressive tax
places a heavier tax burden on people with lower income than those
with higher incomes. Specifically, a regressive is one under which
people who earn lower incomes pay a larger portion (percentage) of
their income on taxes than people with higher incomes. A proportional
tax is one under which people with higher incomes pay the same portion
or percentage of their income on taxes as people with lower incomes.
A progressive tax is one under which people who earn higher
incomes pay a larger portion or percentage of their income on taxes
than people with lower incomes.
- Refer students to Cigarette
Tax Hikes Target Poor from the National Center for Policy Analysis,
and explain that this article cites the statistics shown on the pie
chart while providing further details. Point out the statistic stating
that "one-third of Americans making less that $10,000 a year
smoke" where of people earning more than $50,000 a year, only
19 percent smoke. Continue to point out statistics presented in the
article, and ask students to identify whether this tax is regressive,
proportional or regressive.
- Explain that similar taxes
are applied to alcohol. Refer students to Six-Pack
Tax Guzzlers, from the National Center for Policy Analysis. Ask
students if this tax is regressive, proportional or progressive. (regressive)
- Remind students that there
are two justifications for placing a special tax on goods that increase
the risk of poor health. 1) The revenues from such taxes can be targeted
to health care programs. 2) The tax burden itself may provide an incentive
to quit the risky behavior. Ask students what other goods or services
could be considered health risks. (Allow students to brainstorm.
As students name a good or service, ask them to describe the risk
the good or service poses to one's health. Possible answers include
motorcycles and 4-wheelers, bicycles, cars with poor safety records,
fatty foods, snow boards, bungy jumping, and so on.)
- Refer students to 'Twinkie
Tax' Proposed to Curb American Obesity at Dimensions Online. Explain
that this article cites a U.S. News & World Report story suggesting
other goods for which a six tax could be applied to curb risky behavior.
- Prompt discussion by stating
that in spite of the health risks, our population continues to grow
more obese. Ask students to suggest other ways that the government
might encourage weight loss and a nutritious diet. Refer students
to "IRS Figures
Weight Loss Programs into Tax Deductible Medical Expenses,"
a December 200 press release by the American Obesity.
- In pairs or groups of
three, assign students to choose a good or service where a sin tax
may be applied to reduce risky behavior and prepare an oral presentation
on the subject. They must state the perceived health risk specifically;
whether a tax on the good or service would be regressive, proportional,
progressive, or not able to be determined; and whether a tax on the
good would be the best solution they could suggest for reducing risky
behavior.
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