Taxing products such as alcohol, tobacco, junk food, recreational drugs, fossil fuels, and fossil fuel by-products is a way of funding public health services. A consumption tax is considered a voluntary tax insofar as citizens might choose not to buy inessential items. Advocates of the consumption tax say that taxing rather than outlawing these products protects citizens’ rights to use these products if they choose, but taxing protects the society from the expense of the harmful effects of the use of these products. Harmful effects include putting too great a strain on the medical economy. Historically, such taxes have been called “sin” taxes insofar as they are conceived to discourage citizens from using these products, but whether taxes effectively work this way or not is debatable. Economic strain on an industry can encourage development of healthier alternatives, e.g. alternative fuels and vegetable-based plastics.
Some advocate a kind of consumption tax called a luxury tax on inessential expensive items such as yachts, luxury cars, and jewelry. Opponents of a luxury tax say it unfairly target producers of such products.
Taxes on gambling is also considered consumption tax. Legalized state gambling has increased the number of participants in daily gambling activities, but unlawful gambling may have worse consequences. Some say that certain forms of investments, such as derivative markets, are gambling activities and should be taxed as such. Revenue from gambling tax, like other sin taxes, should be put toward alleviating the harm caused by the practice. In this case, since gambling has been identified as an addiction, gambling tax revenue could be put toward addiction recovery health programs and/or welfare programs.
In 2011 the U.S. Department of Health and Human Services reported that a targeted tax on sugar in soda alone could generate $14.9 billion a year. The Congressional Budget Office (CBO) estimates that three-cent-per-ounce tax would generate over $24 billion over four years.
See sin tax revenues by state.