Tax Analysts Blog

Taxing Coca-Cola While Exempting Broccoli Is Bad Policy

Posted on Mar 5, 2014

The Navajo Nation is trying to use its tax code (I didn’t know the Navajos had a tax code) to promote healthier living. The Navajos recently voted to impose higher taxes on “junk food” and reduce taxes on healthier alternatives. I abhor government attempts to get people to do things for their own benefit. It isn’t the government’s job to make sure I will live to 100 or that I’ll go to heaven. Of course, the Navajo Nation has one of the highest unemployment rates in the country, hovering near 50 percent. Nothing says we care about you like imposing excise taxes on poor people. I know that raising taxes on poor people to get them to follow orders plays well in Knob Hill, and Brookline, and the Upper East Side. But I’m not sure how well it plays in rural Arizona or New Mexico.

Basically, under the proposal soda and fatty snacks would be taxed at 7 percent (up from the current 5 percent), But “fresh” fruits, vegetables, and nuts wouldn’t be taxed at all. I would remind proponents that most people won’t eat Brussels sprouts no matter what the tax rate is. I don’t know how the Navajos will define fatty snacks. Some are obvious -- deep-fried Snickers bars would probably qualify. How about snacks that have no fat, like my personal favorite, cherry Twizzlers? Would they be taxed at 7 percent? I hope not. Would a Big Mac be a taxable snack? What happens if someone eats Twinkies for dinner? Would they still be taxed as a snack? The one upside is that this law may give Rick Pomp a lot of fun anecdotes for the next edition of his casebook.

Apparently, the tribe’s leaders are trying to combat an obesity problem. And the reservations in the Southwest have a problem. I’ve seen reports saying that up to 50 percent of the population is obese. Maybe little Navajo kids are spending too much time in front of the PlayStation instead of running around outside. Maybe Navajos have a fondness for bread and pasta,neither of which will be subject to the higher tax. Yet bread and pasta (as all low-carb dieters know) will mysteriously make you fat.

But whether I’m obese or not, why do you get to decide whether I should be punished for drinking a Coke? What gives you that right? Democracy? In any event, several newspapers reported that a sponsor of the proposal was himself obese before deciding to change his life and losing 100 pounds. And he did it without any tax increases or help from the government.

Read Comments (9)

emsig beobachterMar 4, 2014

I suggest you read the works of A.C. Pigou and Ronald Coase on externalities.
Pigou argued for corrective excise taxes on the production and consumption of
products that harm third parties. Coase explored possibilities of private
actions to ameliorate negative externalities.

The consumption and production of goods and services are sometimes rewarded
with grants and/or subsidies; e.g., "loopholes," special credits, certain
deductions in the tax code.

Whether the negative externalities incurred by the Navajo nation as a result of
their members consuming "junk" food rather than fresh fruits, vegetables, etc.
rise to the level where their consumption must be severely restricted is
subject to debate. If it is determined by a majority of the tribe that
consumption of these foods does impose serious costs on the tribe, than they
should find either Pigovian or Coasian methods of reducing these negative
externalities.

Member so the Navajo nation who object to possible amelioration of any negative
externalities from the consumption of "junk" food can complain or leave --
their Tieboutian choices of Voice and Exit.

P.S. Taxes and subsidies are more efficient means of achieving goals than
outright regulation.

david brunoriMar 5, 2014

Emsig, Citing Tiebout? I love it. I have read Tiebout (with whom I agree). I
have read Pigou and Coase as well. I am not opposed to taxing to defray the
costs of externalities. But if I drink a Dr. Pepper once in awhile there are
likely no externalities that warrrant taxation. And there are so many other
things that make people fat -- like eating three or four pizzas at night. I
know a marathon runner who eats a Snickers bar once in awhile. He has near zero
body fat. Why would we tax his purchase? Cigarettes create externalities if
they are used as intended. Fat and soda taxes -- not so much. I am thinking
that the Nation might want to engage in an education campaign to promote
healthier lifestyles -- think Michele Obama on the Reservation. Then people
should take personal responsibility for their bodies.

emsig beobachterMar 5, 2014

I am suggesting that if the consumption of these "junk" foods although possibly
harmful to the individual, do no real harm to the larger society, let them cake!

Furthermore, it appears that many people do not want to allow the health
insurance industry to apportion the costs among all members of the pool. One
possible suggestion is to tax junk food, however defined, and the use proceeds
to partially subsidize some members of the risk pool who otherwise would not
get insurance.

There are many conundrums regarding lifestyle choices and health. How do you
treat someone who rides a motorcycle without a helmet while eating a high salt
high fat snack and washing it down with a high sugar drink? Or someone who puts
fresh fruit and bourbon on his/her oatmeal?

I am going to further ponder this puzzle while smoking non-filtered cigarettes
and going through a six pack of malt liquor. Coleridge or I will get back to
you.

P.S. I am trying to elevate the conversations in these blogs. Usually they
deteriorated into streams of consciousness political rants.

david brunoriMar 5, 2014

Emsig, We should share that malt liquor! Its the conundrums that bother me. You
identified them. And yes, please help us eleveat the conversation. I wouldn't
want us confused with talk radio.

emsig beobachterMar 5, 2014

David:

In our dotage, we should sit in cafes in Paris smoking Gauloise Bleus and
drinking red wine pondering life's conundrums with our fellow philosophes.

Michael KarlinMar 6, 2014

Isn't the answer to the question in the last paragraph of the post that I have
the right to try to dissuade you from drinking sugary drinks and other
unhealthy foods so long as I am being forced to contribute to the cost of your
health care, which will happen because we end up caring for everyone through
government subsidy, insurance premiums or increased payment to medical services
providers who treat everyone and not just those who can afford it. I have
every right to object to paying more if the reason is that you are obese and
have an unhealthy lifestyle. If you pay a tax on the sugary drink, that will
help pay for the care you will later need for your rotting teeth and failing
and overloaded heart.

We are not talking prohibition or compulsion here. We could clearly eliminate
automobile accidents if we banned cars, but we as a society have decided that
the benefits of having cars is worth the 50,000 road deaths we suffer every
year. So we try to mitigate the problem by forcing everyone to wear
seatbelts. It seems to me that every health and safety measure we take
requires the same weighing of benefits and burdens. Sugary drinks offer
benefits - you can argue whether the pleasure of drinking a Coke is as valuable
as the convenience of driving a car but the pleasure is worth something. If
that pleasure has a cost to the rest of us, then it seems reasonable to allow
for some regulation of that pleasure and a tax seems about the most benign way
of doing it in the case of sugar.

emsig beobachterMar 6, 2014

David, Michael:

These are great posts because they combine philosophy, economics, and finance.
If there would come a time when the health insurance industry would be
perfectly competitive and well regulated, they should be allowed to base
premiums on current state of health, family and genetic makeup, lifestyle
choice, and other factors. Everyone would pay premiums based on their unique
factors but the largest part of the premium would still be based on pure chance
of illness. Consumers would not like this because it is not "fair;" insurance
companies would capture all the consumer surplus {go to Wikipedia}. One benefit
to this pricing system is that it would reduce the moral hazard of insurance
{go to Wikipedia).

Michael is correct that those who engage in risky behavior should be charged
for their choices. The question is: should those costs be covered by taxes or
insurance.

David and I will head for our favorite table at the Café des Deux Magots, smoke
our Gauloise Bleus, drink copious amounts of café and cheap red wine, and
discuss this conundrum with the descendants of Jean Paul Sartre, Albert Camus,
et. al. We will enjoy these pleasurable activities knowing that the negative
externalities and the moral hazard resulting from this lifestyle choice is paid
for by higher than average insurance premiums and high excise taxes.

david brunoriMar 6, 2014

Michael, I do not disagree with your idea of using taxes to pay for
externalities. My quibble is that they should apply to products that usually
cause externalities when used as directed (cigarettes). Lots of people drink
soda without getting obese. And lots of obese people get there without ever
tasting a delicious Coca-Cola. If true, the taxes are misplaced at best and
punitive (on my simple pleasure seeking) at worst.

Brussels Sprouts LoverMar 10, 2014

Oh, come on, David, rejoin us in the real world here. A 7% tax is "punishment"?
Compared with diabetes and the other costs of an obesity epidemic?

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