Friday, February 19, 2010

I can think of worse ideas than taxing soda

New York State is proposing to close parks and delay tax refunds in order to avoid going bankrupt.

It is also proposing to tax soda.

There is no clear Pigovian externality tax case for taxing soda. Although I'm personally convinced that there is substantial circumstantial evidence of a link between growing soda consumption and obesity, it's not clear that obesity causes net social costs. On average, it's entirely possible that the obese contribute more in taxes to society than they consume in benefits. Why? Because their shorter life expectancy reduces the amount of their lifetime expected Social Security, Medicare, and government pension costs.

And it's clear that the public is not especially enthusiastic about the idea of the government using the tax code to manipulate behavior.

However, given the alternatives that are realistically available to the state for raising revenue, I can certainly think of many worse ideas for closing the budget deficit than a soda tax.

The state needs the money in the short run. Soda is not a necessity--people can get along just fine without it, so it's not going to cause the kind of hardship that, say, increased income taxes, property taxes, or general sales taxes might cause.

Given a choice between a soda tax and closing state parks and libraries, I think most New Yorkers would choose the former. I know I would.

But the beverage industry lobby is powerful and well-funded. It's a lot better funded than the lobby to keep the state parks open. It's also better funded than the lobby on behalf of taxpayers who would like to receive their NYS tax refunds promptly.

Thatcher State Park is a spectacularly beautiful park not far from here, a relatively easy trip for urban families. It features an extraordinary geological escarpment with stunning views of the Albany area, great hiking and nature trails, an educational experience full of history and geology. It is a treasure slated to be closed in the governor's current budget proposal, along with many other parks all over the state.

Will Thatcher Park and the other parks on the list be spared? Probably not.

Will the soda industry be spared? Probably.

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