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Greg Mankiw on Whether or Not We Should Tax Sugary Drinks
By JLP | June 24, 2010
I read an interesting piece by Greg Mankiw on the subject of taxing sugary drinks. The reasons for taxing the drinks are:
1. raise tax revenues
2. curb the consumption of those drinks because they have an adverse impact on society
Despite the topic, Mankiw’s piece is interesting, particularly about cigarettes:
They [cigarettes] are among the economy’s most heavily taxed products, as governments try to discourage people from smoking. Yet the case for such a policy cannot rely on a conventional externality argument.
When a person sits at home and smokes two packs a day, the main adverse impact is on his or her own health. And even if second-hand smoke is a concern, that problem is most naturally addressed within the household, not at the state or federal level.
Sometimes, advocates of “sin” taxes contend that consumers of certain products impose adverse budgetary externalities on the rest of us — that if the consumption induces, say, smoking- or obesity-related illness, it raises health care costs, which we all pay for through higher taxes or insurance premiums.
Yet this argument has a flip side: If consumers of these products die earlier, they will also collect less in pension payments, including Social Security. Economists have run the numbers for smoking and often find that these savings may more than offset the budgetary costs. In other words, smokers have little net financial impact on the rest of us.
The bottom line to Mankiw’s article is: do we want government taxing items because they are considered “bad for us?” If so, where does it end? Ice cream, milk, cream, cookies, cakes, white bread,?… In other words, who’s to decide what is healthy for us?
If you have a minute or two, read Mankiw’s piece.
Topics: Economics, Taxes | 9 Comments »
June 24th, 2010 at 4:05 pm
First, governments only tax items they know consumers won’t give up. They know cigs are addictive so they go after them with taxes. The governments depend on those taxes. If it, in fact, reduced consumption, they would be in trouble fiscally (I should say more in trouble). Smoking has gone down over the past few years, but it wasn’t due to taxes. It was due to education. Everyone knows smoking kills, and kids are taught this in school.
Ideally, all items should be taxed equally. In a truly free society, we should have the right to consume whatever products we want, and equality dictates all products receive equal treatment for tax rates.
June 25th, 2010 at 6:17 am
“[If] the consumption induces, say, smoking- or obesity-related illness, it raises health care costs, which we all pay for through higher taxes or insurance premiums.”
If it were not for the government imposition of wage and price controls, companies would never have started providing health insurance, and just like life insurance, our individual policies would be more expensive for smokers.
If the government did not unconstitutionally usurp responsibility for our personal welfare (rather than the welfare of the States), then we wouldn’t have to pay higher taxes for the health care of smokers.
June 25th, 2010 at 9:12 am
I have never understood this circular reasoning by the government (as you pointed out above). Because also, they raise taxes on ‘sin’ items (such a cigarettes) and they say it is to encourage people to quit; yet when people DO quit and sales of cigarettes go down, then the same government complains about the drop in revenue.
It is similar to what happened here locally with water supplies. Everyone was all about “conserve water, conserve water” (which I agree with) and so people began to use less water. How did the local government respond to that? Well, less water usage meant less revenue for the water department. So, of course, they RAISED the water fees to make up for the revenue loss. So now you are paying more for using less water. How is that logical? Why don’t they project these drops in revenue (based on their own encouragement) into their budgets? Why do they even have the same level of “costs” if people are using less water?
June 25th, 2010 at 9:14 am
Taxes (and tax breaks) are often used to implement social policy, i.e., encourage or discourage various behaviors. Obvious examples are taxes on liquor and cigarettes, and deductions for property taxes and mortgage interest.
“Sin taxes” are always very popular with the righteous among us. They may use the excuse of budgetary externalities as a cover, but in reality their main goal is to impose their moral values on others.
I disgaree with Jack’s statement that the government unconstitutionally usurped responsibility for out welfare. Rather they bribe us to behave in one way or another. Even issues like national speed limits are enforced by bribing the states with tax dollars contingent on enforcement. (It’s kinda tough to be bribed with your own money, but it seems to be working for them!)
Our only balance against this is the ability to elect our representatives, and threaten them with termination if they become unreasonable – however we define that.
June 25th, 2010 at 12:46 pm
I disagree with Mankiw’s comment about “main adverse impact is on his or her own health”. There are plenty of studies that show second-hand smoke is a carcinogen and just recently third-hand smoke(residue on clothes).
http://www.msnbc.msn.com/id/35318118/ns/health-addictions/
June 27th, 2010 at 9:19 am
“I disagree with Jack’s statement that the government unconstitutionally usurped responsibility for our welfare.”
Medicare, Medicaid, Social Security, (federal) unemployment payments, etc.
June 27th, 2010 at 3:29 pm
Agree with Ken on second-hand smoke. My mother has lung cancer. She’s never smoke a cigarette in her entire life. Neither have anyone in the family. But when she worked in an engineering company some years ago, virtually everyone she worked with smoked. At the time, anti-smoking in buildings regulations have started, but her boss and the owner choose to ignore it. Did it matter? I don’t know. My mother’s cancer is caused by a acquired (not inherited) rare genetic mutation, but it’s possible that this mutation was caused by exposure to second-hand smoke. Nobody knows. But even if my mother’s cancer just happened because of bad luck, there is somebody else whose cancer was caused by second hand smoke.
As to smoking in your own home. If it’s a private home in the woods – sure, but if it’s an apartment building then the smoke will easily affect the neighbours.
June 28th, 2010 at 2:35 am
Arguments about taxes on soda seem incomplete without addressing the enormous, market-distorting subsidies the federal government provides to grow the corn which gets processed into sweetener.
July 7th, 2010 at 10:25 am
Tracy,
The same logic works in the opposite direction. When gas prices went up Public transit use skyrocketed. This should have meant more revenue from riders to improve service but instead Mass Transit authorities cried how they needed more money to service the extra riders. What were they doing with the extra ridership revenue?