Wednesday, May 25, 2016

PIGOU TAX | Good Tax on Sugary Soda (Updated May 29, 2016)

Illustration of "Taxing Sugar to Fund a City",
Op-Ed, NY Times, May 25, 2016
An Op-Ed by Mark Bittman, who co-founded The Purple Carrot and is a Fellow with the Union of Concerned Scientists, argues that the Berkeley, Calif. popular vote (3 to 1) to tax sugary soda drinks is the wave of the future.

Four other cities in Northern California are also considering such a tax, including the biggest, San Francisco.

So is Philadelphia.

Bernie Sanders opposes such taxes on grocery items because he says they are regressive, i.e., their burden falls on the poor more than the rich.

That is so, not only because poor people spend more of their income on groceries, but also because they are less educated and don't realize how bad for their health is a large intake of sugary drinks.

All the more reason why this tax is especially important for poor people.

Mayor Jim Kenney faces Bernie Sanders' concern about the regressive nature of soda taxes. He is pledging the revenue from the new tax to fund community amenities, especially those for children–universal pre-kindergarten (Head Start for All), community schools, libraries and parks.

So it is win-win for the poor. Either they continue buying the unhealthy soft drinks and support their community projects, or they give up buying the sugared drinks (Pepsi and Coke are offering many  alternatives) and they reduce the demand for health care services.

Comment

So far I have mostly just summarized Bittman's essay. Let me say that I think Bittman is right on this issue. While Bernie Sanders is on target with many of his financial proposals, he is I think wrong on the question of taxing sugary soda.

The illustration to Bittman's essay, of a soda can siphoning into a piggy bank is apt on its own, and is doubly apt when we consider that it is a PIGou Tax.

A tax on things raises their price and reduces their consumption. If the items are potentially socially deleterious, like gambling, tobacco and alcohol, then reducing their usage is a good thing. A Pigou Tax, named after British academic Arthur Cecil Pigou, is one that falls on socially undesirable goods. FDR quickly understood that it was better to permit alcohol and get revenue from it through a "sin tax" than to continue to try to prohibit it.