Tuesday, September 22, 2009

When should we tax consumption choices we don't like?

Ed Glaeser offers his thoughts on soda taxes (note the clear application of economic theory to the issue leads to a clear set of empirical questions). Here's the beginning click the link to read the rest:

Over the past 30 years, Americans have gotten a lot heavier thanks primarily to technological progress in the food industry, which has provided an abundance of tasty, caloric treats. The champions of public health are now fighting fat with the same tools that helped turn the smoky city of the Mad Men-era into the clean-aired boroughs of Bloomberg.

New York City is running anti-soda ads where a brown liquid streaming out of a bottle turns into fat in a glass. The New York Times editorial page wants sterner stuff. They suggest that these ads are distinctly inferior to “the best move when it comes to soft drinks — a tax on sodas and other sugary beverages.”

Many public interventions can be readily dismissed because they are costly and ineffective. Yet the battle against cigarettes has taught us that taxes and advertising can together dramatically reduce an unhealthy habit. The public sector could indeed dramatically drive down the consumption of sugary sodas, but should it? Is public paternalism appropriate? If the state wants to champion health, should it use stomach-churning public service messages or sin taxes?

The economist’s perspective differs from the perspective of the public health advocate.

Public health advocates champion health. Economists don’t exactly champion illness, but they don’t usually think that health trumps all. For die-hard cola lovers, the pleasure of sugary soda may just be more important than the health consequences of a few extra calories. That perspective, combined with a respect for individual decision-making, leads many economists to question the merits of public paternalism.

I have some trouble with the paternalism involved with the tax.
I prefer the billboards with the fat soda. it helps the consumer make a more rational choice by reminding them how bad it is for their health. But if they LOVE soda so much that they don't care about obesity, then let them drink their soda! (maybe make them pay more for their medicaid)
I think taxing plays a smaller role than advertising when trying to impact consumer choices. I think billboards/advertisements help people see the impacts of what they are buying.
I think the in order for the issue to be resolved, the purpose of this tax needs to come out. Are we taxing sugary drinks for increase federal money for uses for the sole purpose of health care? Or is there a more general use of these funds?

I would stray away from taxing if the purpose is to subsidize health care. There are far more solutions to the health debate than throwing in government money to subsidize health care for all. If we want a proactive, uncontroversial approach to reducing obesity levels, perhaps an advertisement campaign for a lower-cost alternative in water. (Assuming that water and soda are substitutes).

Isn't there a problem when bottled water costs the same as a delicious sugary drink? Half jokingly, perhaps the solution is having drinking fountains in populated areas.
The problem with legislating paternalism is that you miss the target audience most at risk. In the case of cigarettes, heavy smokers acknowledge the risks involved and the taxes. For soft drinks, the target audience are those who are already over weight or on the the border. As the article mentioned these individuals have a problem with self-control over consumption (they have an addiction to soda). The legislative paternalism will force those soda drinkers who were on or near the the margin to stop consumption.
Based upon the assumptions that a) legislative paternalism is to protect the health of the consumer, b) the at risk group's demand for this product is quite inelastic and c) i could not stop them from taking action (i like soda sometimes) my recommendation to impose the tax. The tax creates revenue or the state, while the advertisements are a loss of the legislatures' coffers.
However, i do agree with the libertarians in this circumstance. The government should not have an extensive reach into the choices citizen consumption. The government has allowed the product to be sold on the open market as an unregulated product because it was not an overly dangerous. If the government has conducted research and found extensive dangers of use, then they should regulate distribution (a parallel would be the pharmaceutical companies requiring scripts) or outlaw consumption and production in the US. Taxes and advertisements force consumers on the margin from the market, while doing little to stop the abuse of the product from those with a much higher WTP. Therefore the government fails in two ways: first it fails to benefit those who are at risk and secondly it creates DWL in the soda market from those individuals who would have enjoyed a tasty sugary beverage.
The government SHOULD try to prevent people from drinking soda and eating fast food in general, regardless of what they use the tax money for, because an unhealthy population will only cost the government more in the long run.
If Obama wants to provide health care for everyone in the country and the majority of the population is obese and/or has type 2 diabetes, it would be much more expensive, maybe even impossible.
It seems much smarter economically for the government to care about the health of its population.

In response to the comments about the billboards being more effective: it doesn't seem like cigarette cartons with warning labels on them do much to deter smoking. If someone is already an avid soda drinker, a billboard probably won't change their habit. On the other hand, I do support informing people more about where their food comes from and what they are putting in their bodies, because an uninformed public is partially the cause of so many of our health issues.
I think that the government should create a tax similar to the sin taxes for excessively sugary soft drinks. They should then use the tax revenue to fund ad and educational campaigns to inform the population of the risks. Also I think that if we are so worried about the impacts of our eating habits/consumption problems and how much they are affecting/costing the nation than soda taxes are only the beginning and we need a much more wide spread educational and advertising push to promote healthy living.
I'd agree with Zachary on this one. It is one thing for the government to address consumption of inherently dangerous products such as cigarettes (carcinogenic, negatively effects on people who do not choose to consume them) and alcohol (potentially carcinogenic, excessive social and health problems) with a tax to both deter consumers and recoup the social costs of consumption. There is nothing inherently dangerous about soda consumption, or any caloric consumption in general (butter tax?). Imposing a tax regardless of how small it is on the consumption of a product of which nutrition facts are clearly printed on the label is beyond the reach of the role of government. I believe education and perhaps advertising such as the aforementioned bill boards is more effective and truly addresses the root of the problem. There is nothing wrong or 'sinful' (as a sin tax would imply) about drinking a soda in moderation; the problem is lack of information about proper nutrition and health. As some comments on the original post mentioned, it is worth considering that a primary reason soda is as cheap as it is is due to agricultural subsidies that allow corn farmers to produce corn syrup at such an 'artificially' low cost to allow the excessive consumption that results in obesity and social costs.
I think that we could tax things that are bad for us but there will have to be enough of a tax to keep people from consuming these products. At some point people will give into the temptation of a sugary snack no matter the cost. We would need to do some research. Also, with people still consuming the items we tax, will there ever be a substantial change or will peer pressure and other aspects of life continue to keep america unhealthy?
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