Tuesday, March 5, 2013

Selective Sales Tax

During last week’s lecture, we explored the topic of selective sales taxes and how they can be used to collect revenue and change consumer behaviors.  In class we explored the prevalence of taxing tobacco at the national, state and local level in the United States.  These taxes, often labeled “sin taxes”, are used to address or reduce activities that are viewed as socially undesirable or have an adverse impact on public health.
For large-scale tobacco manufactures, these taxes have a direct impact on its consumer base by substantially increasing the overall cost of the commodity.
Phillip Morris International summarizes the taxes applied to its cigarettes in the example below (note: selective sales tax = excise tax)1:

As a result of this taxation, some consumers have changed their purchasing behavior.  In fact, there have been multiple studies that have identified a correlation between cost and consumption in U.S. smokers2.  Public health proponents suggest that the recent tobacco tax hikes enacted by the Obama administration have spurred a renewal in consumption declines amongst poor, minority and teen smokers3

The consequences of this tax climate have lead manufactures to lobby aggressively against increased taxation and regulation.  This response is best illuminated in the comedy-drama, “Thank You for Smoking”4

The ability for government to collect revenue while also improving public health through the use of sin taxes has led some policy makers to suggest that a tax on sugary drinks and candy should be implemented to combat the nation’s obesity epidemic5.  However, such proposals have faced formidable opposition from interest groups and the beverage industry6.  Despite this opposition, some strides in taxation have been made.  According to taxfoundation.org, the following measures have been enacted7:

  • Colorado removed sugared beverages from the list of groceries that were exempt from the sales tax. 
  • Washington enacted a new soda tax, adding 2 cents to every 12 oz. can, and extended the sales tax to candy. 
  • New York, Mississippi and the District of Columbia have all considered legislation to impose a sugary drink or soda tax.

Considering America's ever-expanding waistline, should the federal government institute a national tax on sugary drinks or candy?  What are the merits of the arguments for and against this course of action?

2. http://www.tobaccofreekids.org/research/factsheets/pdf/0146.pdf
3. http://usatoday30.usatoday.com/news/nation/story/2012-09-10/cigarette-tax-smoking/57737774/1
4. http://www.imdb.com/title/tt0427944/
5. http://content.usatoday.com/communities/ondeadline/post/2012/07/nyc-holds-hearing-today-on-banning-large-sugary-drinks/1#.UTYVnKXWpAQ
6. http://www.nytimes.com/2009/09/17/business/17soda.html
7. http://taxfoundation.org/article/review-2010s-changes-state-tax-policy


  1. Vote. I wonder how much of the decline in cigarette consumption is due to price and how much is due to increased awareness of health effects. This would also be interesting to observe if they go ahead with taxing unhealthy food and beverages.

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