Harvard economist Gregory Mankiw had a terrific column in yesterday’s New York Times where he goes through the arguments made for imposing special taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es on soda. He rightly narrows the justifications into two categories: (1) externalities and (2) paternalism.
Unfortunately, the debate rarely ever goes this deep. Instead, the story that is often told is that “government needs money” and “soda is bad for your health,” and “therefore we should tax soda.”
That sounds good, but why don’t the advocates ever cite a specific rate for taxing soda that is socially optimal? The problem is that doing so would make them justify that specific rate according to one of the two categories above. They just cite memorized statistic after statistic like X number of people are obese, blah, blah, blah.
Ask the American Cancer Society what the optimal rate on cigarettes is. They won’t tell you. They’ll just say that “it’s too low, and it should be increased to save lives.” Platitudes like that sound good, but should be taken with a grain of salt unless backed up by hard evidence as to what the optimal policy is.
Taxes or fees on specific products or inputs (like carbon) that can truly improve social welfare are defensible. Taxes on specific products only because somebody wants to impose his/her view of what’s good or bad on others are not.
Unfortunately, there exists a large fraction of the American public that is gullible to platitudes and doesn’t look at policy questions from a proper framework, which is why pieces like this from Prof. Mankiw are a welcome addition to the debate.
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