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Transatlantic Blog

Sin taxes: The ‘nudge’ that benefits terrorism

Richard Thaler won the Nobel Prize for describe how even small economic incentives can affect behavior. One of those nudges, high “sin taxes,” has helped finance terrorism and organized crime.

Sin taxes played some role in his winning the Nobel Memorial Prize in Economic Sciences this week. The Nobel Committee that awarded Thaler’s prize in economics noted, “The insights of behavioral economics can also be used to inform more traditional policy interventions, for example the taxation of ‘sinful goods,’” adding a fresh layer of argumentation “over and above traditional arguments based on externalities: a tax on cigarettes can make a smoker better off (as judged by himself) by helping him quit or reduce smoking.” (Emphasis added.)

This is a fair reading of the Nobel laureate’s work, as he has endorsed and helped implement such policies across the transatlantic sphere.

During an expert panel conducted by University of Chicago’s Initiative on Global Markets (IGM) in 2012, which asked whether soft drink taxes significantly affect obesity, Thaler replied:

Bad question. Taxes unlikely to work if low but big cigarette takes reduce consumption and peoplle don't substitute other smoke! [sic].

Thaler exhibited a high degree of certainty in his answer (seven on a scale of 10).

Such self-assured advocacy spurred Prime Minister David Cameron to establish “nudge units” within the UK government, with Thaler’s assistance. “The unit was initially focused on public health issues such as obesity, alcohol intake and organ donation The Guardian explains, “although its scope has ballooned to cover everything from pensions and taxes to mobile phone theft and e-cigarettes.”

Has metastasizing, paternalistic government helped stanch the spread of sin? On the contrary, it seems to stimulate even worse social maladies.

The American Enterprise Institute released the latest study documenting the harmful consequences of sin taxes – ironically enough, just as Thaler was preparing to accept his Nobel.

An AEI white paper by Roger Bate, Cody Kallen, and Aparna Mathur found that increasing tobacco taxes increases the market for illegal cigarettes. The scholars conducted surveys and examined discarded cigarette packs in 18 cities across the world, including five in the U.S.

“What we found is that 30 percent of all smokers surveyed essentially said they’re buying illicit whites [cigarettes legal in the country of production, but illegally smuggled into other markets where no tax is paid], and the primary reason was that they were more cheaply priced,” said Mathur.

Through the best of intentions, sin taxes subsidize the worst criminals. 

The study did not examine whether taxes increased or decreased overall consumption. But it found a strong correlation with substituting another form of tobacco.

By increasing the number of illicit whites on the black market, Thaler’s “big cigarette taxes” benefited (in Mathur’s phrase) “big, criminal gangs.” One study the authors cite found that “raising the cigarette tax by €1,” or $1.18 (U.S.), “increases the illicit market share by 5 to 12 percentage points.” And the higher the tax, the more smugglers can charge, further padding their bottom line.

Organized crime is not the only beneficiary of too-high sin taxes. Tobacco smuggling is also a major source of revenue for terrorism. Illegal cigarettes provide up to one-fifth of all terrorist organizations’ funds, according to the Centre for the Analysis of Terrorism in France.

The fact that Islamist terrorists often target victims based on their faith gives Christians, Jewish people, and non-Islamist Muslims a powerful incentive to oppose sin taxes.  

Moreover, sin taxes are not very effective at one of their intended goals, getting people to stop smoking. A Gallup survey found that only 14 percent of former smokers quit smoking because of cost. On the other hand, exactly 75 percent of those who successfully quit said they kicked the habit due to health concerns of some variety. 

Through the best of intentions, sin taxes subsidize the worst criminals. Further, they are ineffective. They deliver few of the expected benefits and a bevy of negative, unintended consequences. Nonetheless, Church leaders often advocate unlimited sin taxes or other state actions against addictive substances. 

That may shed light on one particularly sad statistic in the Gallup survey: Only one percent of successful ex-smokers said they relied upon “spiritual help with quitting.” As clergy turn to the government to stamp out the scourge of addiction, their flock follow – and turn away from their shepherds’ voice.

The fact that Christian sermons inveighing against the vices of alcohol and tobacco became a staple of American history, sprinkled with sometimes jaw-droppingly specious assertions, does not mean that pastors have no valid spiritual advice to offer parishioners. Health concerns, by far the most likely motivator to successfully stop smoking, readily lend themselves to (tactful, pastoral) spiritual investigation. Willfully increasing the odds of contracting a terminal disease constitutes poor stewardship of the body God fashioned for us (Psalm 139:13-15). It shortens someone’s earthly service to the Lord, and to humanity, and robs the remaining years of vitality and productivity. And lifelong addiction to any substance is unbefitting of the inherent dignity conferred upon all human beings, who were created to experience “the liberty wherewith Christ hath made us free” (Galatians 5:1).

Announcing God’s power to break sin and addiction will do more good than promoting economic intervention.


Rev. Ben Johnson is a senior editor at the Acton Institute. His work focuses on the principles necessary to create a free and virtuous society in the transatlantic sphere (the U.S., Canada, and Europe). He earned his Bachelor of Arts in History summa cum laude from Ohio University and was inducted into Phi Beta Kappa. 

Rev. Johnson was a panelist at the 2016 CPAC. His writings have appeared in The (UK) GuardianHuman EventsThe Stream, Real Clear Policy, Aleteia.org, Conservative ReviewThe Daily Caller, and have been cited by National Review, CBS News, and Fox News.