Study: Soda, cigarette taxes punish the poor

Study: Soda, cigarette taxes punish the poor

A new study released by the Mercatus Center has sought to answer the question of whether so-called “sin taxes” — levies on unhealthy goods such as soda and cigarette — disproportionately harm the poor.

The researchers’ conclusion? You bet they do. These taxes, the report argues, have a negligible effect on consumption of the products deemed “sinful.” A better way of effecting positive change in the habits of lower-income Americans, the study notes, would be by educating consumers about health risks.

Via the Daily Caller:

Sin taxes like the infamous New York City soda tax generally fail to change consumer behavior while imposing significant costs on the poor, a new study claims.

… [S]cholars Adam Hoffer, Rejeana Gvillo, William Shughart II and Michael Thomas assert that, “selective consumption taxes are both ineffective and regressive, and that improving education and increasing the availability of healthier goods may be better steps than raising taxes on those who can least afford them.”

Governments at all levels, buoyed by “a growing list of academic studies,” impose so-called “sin taxes” in an effort to reduce demand for products, such as junk food, tobacco and alcohol, that are deemed to have social costs (which usually take the form of increased health care expenses).

Advocates also point out that consumers who do not adjust their behavior in response to sin taxes are at least forced to help pay for the consequences of their behavior, further mitigating the social cost.

The authors of the Mercatus study, however, find that sin taxes generally have a negligible effect on consumption, and that the revenues they generate are not, in fact, used to offset the social costs of continued consumption.

Here is a summary of the group’s findings:

In this paper, we have argued that selective sales and excise taxes are not the first-best policy interventions for promoting healthier consumption choices. The existing literature has shown that the consumption of tax-disfavored goods (alcohol, cigarettes, carbonated soft drinks, candy, chips, and so on) is unresponsive to tax-ridden changes in relative prices. We supply additional evidence supporting that conclusion by asking whether purchases of those goods vary across the income distribution and, if so, whether such taxes have disproportionate impacts on lowerincome households. They do.

[…]

These findings suggest that lower-income households are far less responsive than their higher-income counterparts to taxes that promote paternalistic goals ostensibly aimed at promoting healthier diets and other lifestyle choices. Any consumption tax that is selectively levied on snack food, as broadly defined, forces lower-income households to spend disproportionately more of their budgets on the food and drink options deemed to be bad for the households that continue to buy them. One explanation for this finding is that higher incomes supply wider ranges of choices. Combined with the demographic characteristics of low-income neighborhoods, which offer few healthier substitutes for fast food, the burden of selective consumption taxes on poor people is differentially heavy.

Research on diet choices and eating habits suggests that education about the link between diet and health outcomes and access to healthier alternatives are more effective than selective consumption taxes at reducing spending on disfavored goods. Imposing sales and excise taxes selectively on alcohol, tobacco, and snack food is not the first-best policy response to the current obesity epidemic or to any other perceived public health care challenge.

The question that arises is how you go about educating the poor masses and broadening the choices available to them to include more healthful alternatives. There is a strong correlation, if not causation, between education and poverty, which suggests that the target of the study — lower-class Americans — are probably going to be less than ideal “students.” Volumes have been written, moreover, on “food deserts”: communities that are “nutritionally insecure” because of a high demand for junk food and other non-nutrient-dense solutions. How would the researchers solve the problem of supply and demand?

Howard Portnoy contributed to this report.

Cross-posted at the Mental Recession

Rusty Weiss

Rusty Weiss

Rusty Weiss is editor of the Mental Recession, one of the top conservative blogs of 2012. His writings have appeared at the Daily Caller, American Thinker, FoxNews.com, Big Government, the Times Union, and the Troy Record.


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