21 December, 2008

I don't care if you drink soda...?

Matt Yglesias tries to make the case for a soda tax:

Taxing the work people do can have a net beneficial impact on the economy if the tax revenue is spent on something adequately useful. But all else being equal, it does create a drag on the economy. Taxing cigarettes and soda and so forth, by contrast, mostly pushes people toward better healthy outcomes and therefore does something to boost quality of life and economic growth.
There's a difference between cigarettes and soda. If you smoke cigarettes, I have to breath in your second-hand smoke. So taxing cigarettes makes sense. Your action makes me less healthy, so you should be taxed for doing it. On the other hand, you drinking soda doesn't affect me in the least. It does make you less healthy, but maybe you'd rather drink soda than be healthy. Why should the government decide that?

(Okay, you could argue that since I pay for Medicare/Medicaid/etc. and soda makes you less healthy, eventually I'll have to pay for your bad decisions, so it does affect me. But this justifies taxing all kinds of things, like skydiving and not taking a higher-paying job.)


Elliot said...

I was watching David Paterson defend this on Bill Moyers a couple nights ago.

The point here is that pushing people towards better health outcomes is not the primary purpose of the tax. The primary purpose is the need to overcome NY's budget deficit by April, which it is mandated to do by law. So the budget includes massive spending cuts (great for a time of recession!) but that can't do it all, so the state also needs to raise taxes.

So you can debate the merit of the specific soda tax, but only against the backdrop of the need to raise some taxes. Which ones would you raise instead? It would seem odd to me if a state government, when faced with the necessity of raising taxes, would not choose an increase that would have other positive impacts that could partially offset its drag and lead to better general health outcomes. I suppose we could tax broccoli?

spencer said...

Here are some things I would rather they raise taxes on:

* carbon
* gasoline
* driving
* cigarettes
* land
* consumption

There's also the VAT option, which raises tons of revenue.

Elliot said...

Sure. NY should have implemented congestion pricing. And in the specific case of NY, my understanding is that they are raising taxes on gas and cigarettes, in addition to many other things. My point is that there is nothing particularly objectionable in a soda tax as a part of that broader package, especially since it would improve health outcomes in much the same way the cigarette tax has.

spencer said...

My point is that the "especially" clause of the last sentence of your post does not make the soda tax any more virtuous than other taxes, for the reasons stated above. Yes, it improves health outcomes, but not all policies that improve health outcomes are policies that we should pursue. Soda is a good. People like it. People's lives would be worse with less soda. It may be the case that it's worth it for people to have some Coca-Cola instead of a few extra years of life. The best way to determine that is to allow consumers to face market prices and weigh the options themselves.

So what's objectionable about a soda tax is that it singles out a particular good that has no externalities. Economically speaking, a VAT would raise revenue much more efficiently.

Elliot said...

But high levels of soda drinking does have negative externalities - which was Yglesias' point, and which I thought you acknowledged in your original post. I guess now I'm confused as to whether you are objecting to the assertion that soda does indeed create negative externalities, or to the assertion that, among externality-creating goods, soda makes sense to tax rather than, say, simply taxing cigarettes more.

spencer said...

Yglesias doesn't mention anything about externalities besides some vague reference to boosting economic growth. So I'm objecting to the assertion that your drinking soda has any negative effects on anyone besides yourself.

There is the insurance issue that I mentioned, but I don't think there's a market failure here. If you're arguing that anything that will increase my insurance rates should be taxed, then you should tax a lot of things: sloth, overeating, and so forth.