Today, a recently released report in the New England Journal of Medicine by long-time soda 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. advocate Kelly Brownell and six other authors garnered attention in some media outlets. In the report, the authors recommend a penny per ounce tax on soft drinks. So that case of Coke you are buying would cost an additional $2.88.
The report has a brief section on the economic rationales behind such a policy:
Economists agree that government intervention in a market is warranted when there are “market failures” that result in less-than-optimal production and consumption. Several market failures exist with respect to sugar-sweetened beverages. First, because many persons do not fully appreciate the links between consumption of these beverages and health consequences, they make consumption decisions with imperfect information. These decisions are likely to be further distorted by the extensive marketing campaigns that advertise the benefits of consumption. A second failure results from time-inconsistent preferences (i.e., decisions that provide short-term gratification but long-term harm). This problem is exacerbated in the case of children and adolescents, who place a higher value on present satisfaction while more heavily discounting future consequences. Finally, financial “externalities” exist in the market for sugar-sweetened beverages in that consumers do not bear the full costs of their consumption decisions. Because of the contribution of the consumption of sugar-sweetened beverages to obesity, as well as the health consequences that are independent of weight, the consumption of sugar-sweetened beverages generates excess health care costs. Medical costs for overweight and obesity alone are estimated to be $147 billion – or 9.1% of U.S. health care expenditures – with half these costs paid for publicly through the Medicare and Medicaid programs.
Based on these supposed market failures, I’d like to pose this question to the authors: If government had perfect information, would you support a tax on out-of-wedlock sexual behavior? And if we can’t do that for administrative purposes, couldn’t we impose a significant tax on nightclubs and bars as a second best scenario (kind of like how the authors of this report suggest an imperfect soda taxA soda tax is an excise tax on sugary drinks. Most soda taxes apply a flat rate per ounce of a sugar-sweetened beverage. to fight obesity-related market failures)?
Let’s look at how this sex tax would apply to the three rationales the authors provide for a soda tax:
First, I can think of no other “market” in which imperfect information exists at such a prevalent level than that of sexual interactions. How many men and women have perfect information about their sexual partners, especially those on a random night that they meet at a nightclub or bar?
Second, I can think of no other “market” in which the problem of a person pursuing short-term gratification at the expense of possible long-term harm would exists to such a large degree as that in the area of sexual activity.
Finally, there are substantial medical costs from sexually transmitted diseases, the bulk of which persists in out-of-wedlock/multiple partner/sexually active persons. And many of these are borne by taxpayers via government health care expenditures.
Do market failures exist in the soft drink market? Yes. Market failures exists in every market, but the relevant question is whether the government solution to the market failure is worth the costs of the government policy. A government policy designed to internalize the market failures of obesity via a soda tax would impose serious costs on many who are currently consuming soda purely rationally and imposing no externalityAn externality, in economics terms, is a side effect or consequence of an activity that is not reflected in the cost of that activity, and not primarily borne by those directly involved in said activity. Externalities can be caused by either production or consumption of a good or service and can be positive or negative. on others. Questions of liberty and fairness must also enter the discussion given that America is supposedly a free country (for now).
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