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Study: Soda, Cigarette Taxes Punish the Poor

A new study released by the Mercatus Center, a university-based research center, has sought to answer one question – Do sin taxes (taxes on unhealthy goods such as New York City’s soda tax, cigarette taxes, etc.) disproportionately effect poor people or families.

Their conclusion?

“They do.”

Worse, these taxes have a negligible effect on consumption of the products government has deemed ‘sinful.’

The group concludes that education and better selection of healthier choices is the most effective manner in which to effect change for lower-income families.

Via the Daily Caller:

Sin taxes like the infamous New York City soda tax generally fail to change consumer behavior while imposing significant costs on the poor, a new study claims.

In a study released Tuesday by the Mercatus Center, scholars Adam Hoffer, Rejeana Gvillo, William Shughart II and Michael Thomas assert that, “selective consumption taxes are both ineffective and regressive, and that improving education and increasing the availability of healthier goods may be better steps than raising taxes on those who can least afford them.”

Governments at all levels, buoyed by “a growing list of academic studies,” impose so-called “sin taxes” in an effort to reduce demand for products, such as junk food, tobacco and alcohol, that are deemed to have social costs (which usually take the form of increased health care expenses).

Advocates also point out that consumers who do not adjust their behavior in response to sin taxes are at least forced to help pay for the consequences of their behavior, further mitigating the social cost.

The authors of the Mercatus study, however, find that sin taxes generally have a negligible effect on consumption, and that the revenues they generate are not, in fact, used to offset the social costs of continued consumption.

Here is a summary of the group’s findings:

In this paper, we have argued that selective sales and excise taxes are not the first-best policy interventions for promoting healthier consumption choices. The existing literature has shown that the consumption of tax-disfavored goods (alcohol, cigarettes, carbonated soft drinks, candy, chips, and so on) is unresponsive to tax-ridden changes in relative prices. We supply additional evidence supporting that conclusion by asking whether purchases of those goods vary across the income distribution and, if so, whether such taxes have disproportionate impacts on lowerincome households. They do.

These findings suggest that lower-income households are far less responsive than their higher-income counterparts to taxes that promote paternalistic goals ostensibly aimed at promoting healthier diets and other lifestyle choices. Any consumption tax that is selectively levied on snack food, as broadly defined, forces lower-income households to spend37 disproportionately more of their budgets on the food and drink options deemed to be bad for the households that continue to buy them. One explanation for this finding is that higher incomes supply wider ranges of choices. Combined with the demographic characteristics of low-income neighborhoods, which offer few healthier substitutes for fast food, the burden of selective consumption taxes on poor people is differentially heavy.

Research on diet choices and eating habits suggests that education about the link between diet and health outcomes and access to healthier alternatives are more effective than selective consumption taxes at reducing spending on disfavored goods. Imposing sales and excise taxes selectively on alcohol, tobacco, and snack food is not the first-best policy response to the current obesity epidemic or to any other perceived public health care challenge.

Rusty Weiss

Rusty Weiss is a freelance journalist focusing on the conservative movement and its political agenda. He has been writing conservatively charged articles for several years in the upstate New York area, and his writings have appeared in the Daily Caller, American Thinker,, Big Government, the Times Union, and the Troy Record. He is also Editor of one of the top conservative blogs of 2012, the Mental Recession.

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