Friday, January 13, 2017

How to Predict the Future

In June of last year I wrote about a proposed beverage tax in Philadelphia.  These were my comments at the time.

“The new mayor of Philadelphia wants to impose a special tax on non-diet soda and other sugary drinks.  The new tax is expected to “generate more than $400 million over the next five years” to help fund a plan for universal pre-K and community schools among other benefits.  Using a good cause will bring goodwill toward paying the tax, right?  I doubt it.  This action is much more intrusive than just requiring warning labels.  The new beverage tax will not only double the cost of soft drinks and juices, it will have some interesting, unintended side effects.  Those who are better off financially can afford to drive outside the city limits to buy their cola.  The ones who will be hurt most are first, the city grocery stores which lose business as the special tax drives grocery shopping out of the city for some and second, the poor whose options are limited, ironically the same people who the universal pre-K programs are intended to help.  When you consider human behavior, the $400 million looks like a pipe dream.”

The overall theme of this June 3, 2016 entry was that if we don’t exercise responsibility and take proper care of ourselves, someone will feel obligated to step in and force the proper behavior on us – on everyone, not just those who need it.  Irresponsible behavior by many leads to across-the-board loss of freedom.

The tax became effective with the new year, 1.5 cents per ounce – that’s per ounce, not per can or bottle.  The people in Philadelphia are upset!  Did they sleep though the discussion and announcement last spring?  It was not a secret and the outcome was easily predictable.  Now the cost of a soda is up more than 50%, about a one dollar increase on a two-liter bottle.

In this Fox News video the host asks the opinions of two sources that they brought in to comment on the tax and the reaction to it.

The first commentator points out that these programs, like cigarette taxes, are designed to change behavior as they are passed along to the consumer.  In doing so the tax is supposed to go away with the change.  The idea of trying to make it more palatable by tying it to a new education program is crazy.  If it’s successful and consumption is reduced, and with it the taxes, the great new programs will quickly become underfunded.  Then what are they going to do?  Also when a tax is limited to a particular locale, those who are able will naturally make short trips to avoid it (as I said above).  It also may encourage smuggling as a black market develops.

The comments of the second individual are interesting in a different way.  She defends not the tax, but the intent and the need to do something.  She insists that obesity due to too much sugar is such “a very serious issue” that it’s the duty of government to fix it.  (That is exactly my point about loss of freedom.)  She goes on saying that we are not healthy in America and that it’s “a fair thing for the city to address,” that the city has to take more responsibility for this.  She believes the goal is a reasonable one, because in our society we give the states and localities police power to keep us healthy and safe.  “They deal with our moral wellbeing as well as our physical wellbeing.”  This tax is not the answer but it’s such a big problem it must be addressed (somehow by government). 

Back to the tax itself, to quote a conclusion they both agree on:  “It doesn’t work.  It’s a bad plan.”  So if it is so obvious now, why couldn’t the mayor and city officials see this coming?  The answer is a deficiency in the dimension of economic understanding.  As long as we have citizens weak in economic understanding, we will elect government officials with the same shortcomings and continue to face the same kinds of problems, while wrongly calling predictable outcomes unintended consequences. (More on this next time.)

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