Don’t even THINK about taxing soda

Opponents of taxes don’t lack for arguments. Here’s an especially creative one, against proposals to tax sugary drinks: The very debate about the tax will be a waste of money – a “social cost”! Seriously.

Here is what Professor William Shugart, II, wrote in the Wall Street Journal:

“Wasteful rent seeking by advocates and adversaries of a selective tax can swamp its social benefits, if any. Suppose that a proposed tax is expected to raise $1 million in revenue over the medium term. Producers and retailers of soft drinks will be willing to spend up to $1 million to block the tax from being enacted; groups supporting programs financed by the revenue also will spend money to pass the tax. So, if $1 million (or more) is invested in lobbying, that sum is transformed into a social cost, which must be added to the already-heavy burden that every tax creates.”

OK, it’s fair to say the debate itself may tend to raise soda prices. Soda sellers will either swallow the cost of the debate, or pass it on to consumers. And the spending for that debate will go to consultants, and media, and pollsters – not to the public. (Part of the anti-tax view in many cases, it seems to me, is that the government is the enemy of the public, not its servant. Professor Shugart says a soda tax “will generate more of other peoples’ money for profligate state governments to spend.” Lots of people don’t trust government. The Founders would understand. But take distrust too far, and you’ve got anarchy.)

I have no problem with calculating the cost of political debate. But to tally that cost as a bad thing, seems weird – and undemocratic. Are other political debates “social costs” that we should avoid? I’m still thinking about this. The “social cost” of money spent to oppose soda taxes doesn’t bother me, somehow. That’s free speech, at least under Citizens United, and who’s against free speech?

Professor Shugart has been opposing taxes for a long time. His 1997 book, Taxing Choice: The Predatory Politics of Fiscal Discrimination, is one of the first sources I ran across when I started studying sumptuary taxes.

Here’s the link to the WSJ article, and to a counterargument (more sensible to me) from Kelly Brownell, Dean of Public Policy at nearby Duke. http://www.wsj.com/articles/should-there-be-a-tax-on-soda-and-other-sugary-drinks-1436757039

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Author: patoglesby

From 1982 to 1990, I worked in tax policy for Committees of the United States Congress. In recent years, I was Adjunct Lecturer at UNC-Chapel Hill's Business School and then Adjunct Professor at its Law School.

2 thoughts on “Don’t even THINK about taxing soda”

  1. William Shughart was a tax consultant for the tobacco industry since at least 1984. Science Corruption has an excellent post chronicling Shughart’s association with the Tobacco Institute, the tobacco companies’ lobbying organization, here is the link: http://sciencecorruption.com/ATN183/00198.html
    If you look at this document from the Legacy Tobacco Documents Library: https://industrydocuments.library.ucsf.edu/tobacco/docs/#id=gzjk0004, the “social cost” argument was and continues to be widely used by the tobacco companies to oppose any tax increase on tobacco through economists like Shughart. Here is a document from 1989 that goes through the social cost argument, which was developed in response to health advocates arguing for tobacco control policies on the grounds that there are social costs (health care and lost productivity) associated with smoking. Find the document here: https://industrydocuments.library.ucsf.edu/tobacco/docs/#id=qyjf0117
    Shughart is one among many “academic” economists who the tobacco companies paid to argue pro-tobacco arguments against restrictions on smoking, including clean indoor air and tobacco taxes. In 1989, the tobacco companies allocated at least $300,000 to promoting their interpretation of social cost and smoking, which is identical to the argument made by Shughart in relation to soda taxes.

  2. There are a number of important points Shughart makes in the article referenced here (http://bit.ly/1K7g5NF) – starting with the fact that targeting sugar-sweetened beverages with a tax is “bad policy.” Indeed, this tax “doesn’t solve the health problems it purports to address,” and studies show such a tax could have the exact opposite effect, increasing caloric intake from other sources: http://ajae.oxfordjournals.org/. These findings, in addition to other studies and real world examples, show so-called sin taxes won’t change health behaviors as many politicians promise. Such taxes are arbitrary, regressive, and amount to nothing more than a government revenue generator.
    -American Beverage Association

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