Washington voters just approved
a measure preventing cities from imposing
a sales tax on grocery items. Food
bought at grocery stores is currently
exempt from state sales tax but recently
the Seattle city council passed a tax
on soda beverages.
The advantage of a soda tax is that it
will discourage people from buying soda
and thereby promote better health.
A disadvantage is that lower income
people are more likely to feel the
incidence of the tax. In economic
analysis there is a benefit to place
a tax on a product that has negative
effects, but there also are efficiency
advantages to having tax rates uniform.
The important point here is that there
are good arguments on both sides.
Like many other products, soda is fine
if consumed in small amounts but can
be a problem if consumed in large amounts.
That suggests that perhaps the ideal
tax on these products would be non-linear,
meaning that the tax amount would not
be in proportion to the amount consumed,
but instead the tax amount would increase
faster than in proportion to consumption.
However, a tax such as this is totally
not practical. It won’t work if different
people have to pay a different amount
of tax for the same product (among
other problems, the people that face
a lower tax rate because they consume
less soda could buy soda at the store
and then sell it to their friends
that consume more).
Rather than have the government try
to micro-manage lives by setting
different tax rates for different
products it probably would be
best to simply not have a sales tax
and instead rely on an income tax
(which would also have the advantage
of a better relation of the tax
amount with the ability to pay).
The question of what tax rates should be
is a matter of opinion (different people
can disagree since there is no right
answer).
……………..
–Douglas Downing
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