Taxes

Taxes are exactions on income, property, services, sales, value added, labor, luxuries, or on any form of wealth. There are two main reasons for levying a tax: to raise revenue or to regulate the uses of goods or services, or to suppress behavior authorities have deemed to be socially unacceptable.

Revenue taxes are raised to support the many functions and services of government. These include defense, policing, fire, flood, health, and other forms of protection, including maintaining prisons. In addition, revenue funds may be used to support the general cost of government, to supply education, mental health services, and general health services, or for other needs of the country's people. Regulatory taxes appear similar to revenue taxes, but the goal of these taxes is not to gain revenue, but to control. They are imposed to regulate products or behavior that government policy seeks to eliminate or control.

Regulatory Taxes

While the revenue from a regulatory tax may be a lucrative source of income for a government, regulatory taxes exist to penalize or even prevent the sale of a product, or to prevent socially undesirable behavior. Alcohol and tobacco, if not banned outright, have often been heavily taxed to reduce consumption. Part of the regulatory scheme could involve, for example, forcing companies producing alcohol to pay a regulatory tax in the form of a license fee.

Narcotics are tightly regulated drugs. In the 19th century, attempts by the Chinese to regulate the opium trade evoked the Opium Wars. In the 20th century, taxes have been used to regulate a range of narcotics and other drugs, such as marijuana. These regulatory taxes were later expanded to control organized crime. The taxing of the manufacturing and distribution of firearms and other weapons, such as machine guns, was enacted in part to control organized crime. Governments have sought to control drugs and gambling through taxes on a license to administer drugs or on those engaged in the gambling profession.

Regulatory taxes can also be used to protect producers. For example, tariffs were used extensively by the United States in the 19th century to protect American manufacturing from cheaper foreign goods. The protective tariffs made the cost of domestic goods seem cheaper because of the tariffs levied on imported goods.

Favored domestic corporations can be the beneficiary of regulatory taxes. Oleomargarine was taxed in the early decades of its use to protect the dairy industry. The tax was imposed because dairy farmers voted in greater numbers than did the oleomargarine manufacturers. Congress and the states have taxed futures in grain commodities and cotton at the behest of agricultural groups.

Regulatory taxes have been designed to protect public health. Congress sought to protect the health of children with a prohibitive tax on child labor. It also imposed a regulatory tax in the early 1900s to protect industrial workers making phosphorus-tipped matches from developing a degenerative disease (“phossy jaw”) caused by prolonged exposure to phosphorus. Heavy taxes on smokestacks (effluent tax) seek to regulate air quality conditions.

In recent years numerous proposals have been floated that, if adopted, would tax the carbon dioxide emissions of business, manufacturing facilities, and other business activities. A tax on carbon dioxide emissions, if adopted, would be a regulatory tax. If allowed, even home fireplaces could be taxed. The justification for this form of taxation is the belief that global warming [Page 1547]is occurring and that it is anthropogenic. Carbon dioxide is a natural gas that is breathed in by plants to make chlorophyll. After making chlorophyll, they breathe out oxygen. The issue over carbon dioxide and greenhouse gases is centered on the level of carbon dioxide in the atmosphere. Carbon dioxide is a natural greenhouse gas that aids the earth by retaining some of the energy radiated into space by the surface of the earth. The tax is being justified by hailing the need to reduce global warming caused by an excess of carbon dioxide. The excess is alleged to be due mainly to the burning of fossil fuels. If adopted, a global tax on carbon dioxide emissions would require a global enforcement mechanism.

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