The Sugary Beverage Debate

More Soda Wars

Aug 14, 2012 • Behavioral Economics, Demand, Supply, and Markets, Economic Debates, Economic Thinkers, Government, Macroeconomic Measurement, Regulation, Thinking Economically, Uncategorized • 123 Views    No Comments

If you lived in Richmond, California, would you vote yes or no for their proposed soda tax?

The tax is unusual because it does not charge people at the register. Instead, retailers would have to pay a license fee that is based on how many ounces of SSBs (sugar sweetened beverages) customers purchase. The city expects sellers to increase prices because of the fee.

City councilmen who like the proposal remind us that half of the children in Richmond are obese and that they can use the $3 million they project for sports fields, children’s diabetes treatment and nutrition education. An economist might add that the fee is Pigovian named after Arthur Pigou (1877-1959) who supported the concept because it discourages undesirable behavior and raises revenue.

On the other side, City Councilman Corky Boozé said it is unfair that the tax targets the poor. In a more affluent community, residents have the ability to avoid it by traveling elsewhere but not in Richmond where few people can afford cars. ”I eat sweet potato pie and candied yams,” he added, “And what about cupcakes? Are they going to tax them?” Predictably, one store owner worries that his business would suffer if he passes along the entire fee of 68 cents on a 2-liter drink to his customers.

Opponents also point out that the license fee is regressive. With a regressive tax or fee, the poor pay a higher percent of their income than those who earn more. Assume for example that 2 people both buy the same item and pay a $10 sales tax but one earns $100 a year and the other, $1000. The first individual is paying 10% of her income while for the second, it is 1%.

So many issues…

Do you believe the license fee is fair? Do you care if its impact is regressive? Do you like a Pigovian approach? Does it reflect an appropriate role for government?

In November, at the Richmond polls, how would you vote?

To read more about soda taxes, this NY Times update discusses New York City’s large size sugary beverage ban and herehere and here econlife looks at soda and fat taxes. For an academic approach, this Chicago Fed paper also focuses on the impact of soda taxes while details about the Richmond proposal are in this PBS interview, this NY Times article and a WSJ story.

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