New York State Health Nanny (Commissioner) Tries to Defend Soda Tax

December 29, 2008

The New York Daily News provides a link to a Youtube video made by New York State Health Commissioner Richard Daines who makes a five-minute video arguing for a tax on non-diet soda.

You can tell that Daines and those in Albany who designed this stupid policy have very little understanding of Pigouvian taxation in the first place because he is promoting an ad valorem tax on soft drinks as opposed to a per-unit tax. If the sugary content of soda is what is bad, then shouldn’t the tax be based upon the sugary content and not the price? If I buy a Sam’s Choice Cola instead of Pepsi or Coca-Cola, why should I pay more tax on the Pepsi/Coke compared to the Sam’s Choice. Both essentially contribute the same to obesity.

I oppose the policy, but could have written a better nanny policy that more effectively limited obesity.

Here’s what should be the proper tax policy with regards to soft drinks:

The tax should be set to offset the true negative costs imposed on others in society from the soda’s consumption, and supporters should justify the tax with numbers on what is the true external cost. Merely citing the total economic cost of something is not providing any relevant information on optimal Pigouvian taxation. Everything has an economic cost, but not everything has a substantial external cost imposed on third parties.

Daines claims that you should not say no to this policy just because there are other unhealthy activities that won’t be taxed. But by taking this position, Daines is not getting to the core of the problem. He assumes a link between soda and obesity and says we need to tax soda to offset obesity. But why not go straight at the problem? That’s the problem I have with folks like Daines. They are totally dishonest when they start with proposing the taxation of just one product (soda) that they claim is a source of some other problem (obesity).

Advocates of raising the federal gas tax like Greg Mankiw are at least honest when they tell you that they would prefer a carbon tax, which goes more directly at the source of greenhouse gas emissions. But if you asked Daines whether he would support a policy of taxing individuals based upon their BMIs, thereby targeting the “problem” at its core, I doubt he’d give you an honest answer.

That’s the main difference between economists who understand Pigouvian taxation and its ability to improve societal well-being and public health nannies like Daines who have other agendas and have little understanding of sound tax policy. (See also the blog post below this one that has a similar problem that we can continue to see — setting a cigarette tax rate to raise revenue as opposed to offsetting the negative costs imposed on others.)

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