What Would The Optimal Vice-Tax Policy Be?

Ever since the invention of taxation thousands of years ago, there has always been much controversy about it.  One of the oldest (if not the oldest) types of tax is the excise tax, which is an indirect tax on specific goods and services.  Common examples in the USA and most other countries include taxes on things like alcohol, tobacco, and gasoline/diesel fuels.  Though originally intended primarily to raise revenue, and highly effective in that regard, such taxes can also have a Pigouvian logic to them:  they help offset negative "externalities" related to the consumption of such goods/services, and also help to reduce such consumption and externalities as well.  Of course, such reasoning only adds to the controversy surrounding the idea.

We at Twenty-One Debunked believe that such taxes are a good idea on balance, and are infinitely preferable to prohibition, including "selective prohibition" for young adults under 21.  We have noted in several previous posts how such taxes are far more efficient than the blunt sledgehammer of prohibition, not to mention cost-effective as well.  In most cases, the taxes already exist and it is simply a question of raising and/or tweaking them, they raise revenue rather than cost it, and they don't violate anyone's civil rights either.

After reviewing the literature and thinking very hard about it, Twenty-One Debunked has come up with the following recommendations about various vice and fuel taxes.

Alcohol

• Raise and equalize the federal taxes on beer, wine, and distilled spirits to the real (inflation-adjusted) 1991 level for spirits:  $24/proof-gallon in 2016 dollars.  (Note how it's proportional to alcohol content)
• Beer of 6% ABV or less should be allowed to treated as a flat 5% ABV per barrel for tax purposes.
• Microbrewers should be exempt from any such tax hikes, at least on the first two million barrels per year.
• Adjust all taxes for inflation annually from now on.  Fix it, and forget it.

Tobacco 

• States with cigarette taxes less than $1.00/pack should raise them to between $1.00-$2.00.
• States with cigarette taxes greater than $2.00/pack should cut them to between $1.00-$2.00.
• Don't raise the federal cigarette tax any further, except to keep pace with inflation.
• All taxes on tobacco products should be equalized across types of tobacco products, and collected at the producer rather than the retail level.
• Adjust all taxes for inflation annually from now on.  Fix it, and forget it.

Cannabis

• Legalize and tax recreational cannabis at a rate of $10-50/ounce on average, adjusting it up or down proportional THC content.
• Collect such taxes at the producer level rather than the retail level.
• Medical cannabis should be exempt from such taxation.

Fuel

• Raise the federal gas tax (and diesel tax) by a penny per week until it is $0.50/gallon higher than now.  (Or $1.00/gallon higher than the status quo if we remain without a carbon tax-and-dividend).
• Call it "A Penny for Progress".
• Give a modest "prebate" to all licensed and registered vehicle owners over the age of 21 (or 25).
• Adjust it for inflation annually from now on.  Fix it, and forget it.

Road Tax 

•  As more and more electric and alternative-fuel vehicles replace gas and diesel ones, a new source of highway infrastructure funding will be necessary.
• Pro-rate vehicle registration fees (road tax) by the number of miles traveled in the past year.  Record odometer readings at each annual safety inspection, and adjust registration fees up or down accordingly.

So what are we waiting for?