Sunday, January 04, 2009

What Will Be New York's Unintended Consequences of the non-diet Soda Tax?

From the New York Daily News:

ALBANY - A can of Coke could soon cost New Yorkers more than just calories.

Gov. Paterson, as part of a $121 billion budget to be unveiled Tuesday, will propose an "obesity tax" of about 15% on nondiet drinks.

This means a Diet Coke might sell for a $1 - even as the same size bottle of its calorie-rich alter ego would go for $1.15.

What externality is intended to be corrected here, if any? Is it physical appearance? If so, should we subsidize cosmetics and alcohol consumption, while taxing bad haircuts?

Recall that cigarettes and alcohol have "sin" taxes, so my guess is that "obesity tax" is a marketing decision.

Contrary to the third paragraph above, I find it unlikely that demand for Diet Coke, or any soda, is perfectly inelastic. As such, consumers will bear probably only a small portion of the actual tax, the lion's share falling on the producers. (Layman's translation: final price would only be slightly above $1, not $1.15.) What will it then accomplish in terms of substituting to healthier drinks?

What substitutes will consumers switch to? My guess is juice, which I had heard (from my wife) was the leading cause of childhood obesity, but this is of some debate. Then again, soda is also debatable as a cause.

Lots to think about, comments are open as always.
(Hat Tip: Suzie Witmer)

8 comments:

joshua said...
This comment has been removed by a blog administrator.
Justin M Ross said...
This comment has been removed by the author.
Thomas said...

It's obviously not ugliness they're trying to tax. How about the fact that obesity impacts public spending via healthcare costs? Maybe this tax reduces total spending, and maybe not, but how about a little real analysis and thought instead of knee-jerk reactions? This blog is turning into the economic equivalent of yellow journalism.

That link you provided points to "obesitymyths.com". I wonder who owns them? Let's see...
Domain Name: OBESITYMYTHS.COM
Created on: 06-Jul-04
Expires on: 06-Jul-09
Last Updated on: 29-Sep-08

Administrative Contact:
, bowers@consumerfreedom.com
1775 Pennsylvania Ave NW
Suite 1200
Washington, District of Columbia 20006
United States
202-463-7112

Hmm, okay, who is ConsumerFreedom.com?
Registrant:
Guest Choice Network
1775 Pennsylvania Ave., NW Suite 12
Washington, DC 20006
US

Domain Name: CONSUMERFREEDOM.COM

OK, let's keep going. Who is "Guest Choice Network"? A little Googling shows that it's owned by Rick Berman, a lobbyist. Who's he paid by? CBSNews.com says "Companies pay him to fight animal rights, healthy food, unions, even Mothers Against Drunk Driving." (http://www.cbsnews.com/stories/2007/04/05/60minutes/main2653020.shtml)

So perhaps unsurprisingly, the site that says that soda and snacking is unrelated to obesity is funded by companies that make sodas and snacks. Might there be a bias-creating incentive there?

Thomas said...

Also, FYI, note the "Term Life Insurance" link below the first comment by joshua/Deborah. That's what's known as blog comment spam. It's probably not a real person.

Phat said...
This comment has been removed by the author.
Phat said...

Perhaps, rather than subsidizing sugar production we should tax it. The thing is, you're naturally programmed to love sweetness. To some extend, tricking us to buy extremely sweet products is playing on human weaknesses, similar to cigarettes.

Justin M Ross said...

Phat:
FWIW, sugar farmers do receive subsidies, but tariffs ensure that prices are much higher in the U.S. for sugar than the rest of the world. I agree with ending both the subsidies and tariffs, and would trade them away in exchange for a tax on sugar consumption.

Thomas:
Thanks for the tip on the spam, I'll know to look out for that in the future. That is impressive work on tracking down the who's who of the obesity myths link. I'd rather judge the arguments made rather than the "who" is making the arguments, so I am largely uninterested in the "who." Since I am not qualified on what makes a good obesity study, I just take it as a given that there is disagreement and leave it to those better qualified than me to hash it out. My comparative advantage is discussing the effects of the tax. Is there an externality to be corrected? Why this externality and not another? What will people switch to? How much will the retail price actually rise?

Also note that I am also opposed to MADD, at least until they drop their campaign against the proposal to lower the drinking age to 18.

Phat said...

Couldn't agree more with that. To paraphrase Russ Roberts, buying products like sugar from third world countries makes a great foreign aid program. To my amazement, this argument only seem to resonate with Economist and the like.

Anyways, in Europe they have mild sugar tax, but it doesn't have a significant impact. A snickers candy bar goes for one euro fifty.

When you're living on a budget, its pretty hard to limit yourself to a 2500 kcal diet of quality food, when you can a 4000 kcal diet that is sweet, tasty and much less expensive.