Externalities

Ezra Klein quotes Nick Kristof’s “soda tax” column today, citing the cigarette tax as model and also the biggest public health innovation in the last 40 years.

“[It] was the cigarette tax.” Among public health types, that’s an uncontroversial conclusion. But in politics, you’re not supposed to apply the experience in any broad way. For some reason, it’s considered much more dangerous to tax soda than work. But from an economics standpoint, that doesn’t make much sense. You don’t want to tax things that you want people to do more of. Like, say, work. You do want to tax things that you want to discourage, like emitting lots of carbon. Insofar as our society is going to have taxes, best for them to be of the two birds, one stone variety. If we can save lives while we raise revenue, why not give that a try?

I’m in agreement that taxes ought to reflect the public’s best interest, but isn’t it obvious why taxing consumer choice is more dangerous than taxing income? Our society places a great emphasis on the notion of choice and personal liberty, and roughly half of the country is programmed to automatically revolt at any perceived encroachment of their liberty. But, smoking, like emitting carbon, imposes negative externalities on the rest of society, so it isn’t purely a matter of personal choice. It’s arguably one of the greatest shortcomings of free market triumphalism.

More concretely though, it’s a lot easier to account for expected revenue from income than behavioral taxes.

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