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The Coke Tax

June 10, 2010

Not that coke, you junkie.  Where are you from?  Anyway, Harvard economist Greg Mankiw had a column in Sunday’s NYT arguing against the Coke tax (also known as the soda tax in some sects of the country) on the basis that the feds really shouldn’t be telling you what is and what is not good for you.  Of course, he clarifies this is the context of practical issues—the public’s intake of carbonated beverages doesn’t really affect public health spending anyway, so it comes down to the question of “do you trust the government enough to appoint it your guardian?”  How come this is a big zero on public health spending, you ask?  Mankiw explains:

Sometimes, advocates of “sin” taxes contend that consumers of certain products impose adverse budgetary externalities on the rest of us — that if the consumption induces, say, smoking- or obesity-related illness, it raises health care costs, which we all pay for through higher taxes or insurance premiums.

Yet this argument has a flip side: If consumers of these products die earlier, they will also collect less in pension payments, including Social Security. Economists have run the numbers for smoking and often find that these savings may more than offset the budgetary costs. In other words, smokers have little net financial impact on the rest of us.

That may seem a little, uh, morose, but it’s definitely worth taking into account.  If drinking lots of soft drinks and smoking lots of cigarettes makes you die quicker, then you’re not really a problem for the rest of us, are you?  David Leonhardt, however, disagrees with the comparison:

The link between sugary drinks and obesity is stronger than the link between any other kind of food and obesity, as Kelly Brownell, the Yale obesity researcher says. Calorie intake from these drinks — most of which have no nutritional benefit — has increased almost threefold since the late 1970s. The increase accounts for about half the total per-capita rise in calorie consumption over the same period.

Obesity, in turn, causes a very different pattern of illnesses than tobacco does. Obesity has caused a sharp increase in costly chronic diseases, like diabetes, but is much less likely to cause rapidly fatal diseases, like lung cancer. An article in Health Affairs estimated the annual cost of obesity to be $147 billion and growing. That translates into $1,250 per household, mostly in taxes and insurance premiums.

This is really the primary factor in whether or not I can support this idea.  If the budgetary concerns are indeed null, as Mankiw suggests (indeed, he has some evidence to back him up), then simply contending that “our kids drink too much soda” is not good enough to warrant the tax.  If, however, Leonhardt is correct, and obesity is less likely result in death soon enough to have zero effect on public health spending, then the idea is worth some exploration.  Entitlement spending is killing us, monetarily speaking, and if Coke drinkers are really making this problem worse, then I’m willing to explore ways to help that situation.

Veronique de Rugy, however, has another interesting take on this issue.  Her argument is that the tax wouldn’t really have that much impact on revenues and it wouldn’t really help obesity because soft drinks represent less than 10 percent of the average Coke drinker’s caloric intake.  Sounds pretty useless to me.

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